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Strategic risk arises when a company fails to anticipate the market’s needs in time to meet them.A company that has unmatched manufacturing processes will still fail if consumers no longer want its products.Like any risk, strategic risk falls along a classic bell curve, with results along the x-axis and likelihood along the y-axis.
A key tenet of ERM is measuring risk with the same yardsticks used to measure results.
In this way, companies can calculate how much inherent risk their initiatives contain.
He makes sure all his stakeholders are aware of this policy.
He provides safety training for his employees and explains who is responsible for specific safety risks.
Studies of the largest public companies indicate that strategic risks account for approximately 60 percent of major declines in market capitalization.
Operational risks have just half that impact (about 30 percent), and financial risks generate about 10 percent.To learn more, download Strategic Risk Management: The Next Frontier for ERM. Mike was a founding member of XBRL International with involvement in the XBRL initiative dating back to 1999.He has also been active in industry associations, including the Open Compliance and Ethics Group (OCEG) and the Institute of Internal Auditors (IIA).The example above maps out the steps that every risk management plan should include.Before you create a risk management plan, think about which areas of your business it will refer to.Most strategic planning considers only this peak while ignoring the slopes to either side.But imagine two strategic initiatives, each with a similar expected result.One falls along a narrow, steep curve, indicating a low risk of failure and little upside opportunity.The other is represented by a wider bell, with greater chances of both under- and over-performance. The answer depends on an individual company’s appetite for risk.It may be easiest to describe strategic risk by what it is often confused with—operational risk.Good operations mean doing things right, while good strategy means doing the right things.