We start with strategic planning because it affects all levels of management, hence giving maximum exposure to risk management. Senior management, Board members and even some shareholders input into the process, while the rest of the company and broader stakeholders usually see the outputs of strategic planning. Integrating risk management into strategic planning helps to raise the risk management awareness and address the uncertainty associated with achieving strategic objectives.
The impact of uncertainty on the strategic objectives should be assessed at the time the strategy is formulated and not after it was approved by the Board of Directors. To integrate risk management into strategic planning properly, risk managers first need to build the relationship with the strategic planning department then make sure the strategic risks are included on the strategic sessions / workshops agenda and provide risk analysis to support such discussions. Another action point is to include elements of risk analysis into the actual strategy setting and update processes. Risk managers can use scenario analysis or simulation modelling to present an independent opinion on strategic objectives and the impact the risks may have on their achievement.
In some cases, the company’s senior management or Board members may request an in-depth analysis of certain strategic risks before finalising the strategy. One of the risk managers we interviewed told us how analysing long-term liquidity using the Monte-Carlo simulation helped reshape the whole strategy of the company.
HERE IS A QUICK CHECKLIST TO TURN THIS SECTION INTO ACTIONS
|☐||Include risk management as an agenda item for the next strategy session|
|☐||Review the existing strategic plan to see whether risks and their mitigations are adequately covered|
|☐||Test whether strategic assumptions are realistic, adequate and give sufficient consideration to risks. Perform scenario analysis or simulation modelling to test the validity of management assumptions|
|☐||Perform in-depth risk analysis on the most significant strategic risks to test their impact on the strategy|
|☐||Document the requirements to capture and mitigate strategic risks into the policies and procedures. Make risk analysis part of the strategic planning process|