How to Improve Execution through Strategic Risk Management

Imagine a company who has a clear, superior strategy.  They know 1) where they are, 2) where they want to go, 3) how they will get there, and 4) how they will measure their progress.

Strategy, execution, success

Companies struggle with execution. Strategic risk management can aid companies in achieving their goals.

Superior strategy does not guarantee superior execution.

Let’s get personal for a minute. How would you rate your company’s ability to execute? Does your company consistently meet its goals?

The best-laid plans of mice and men oft(en) go astray. Life is filled with uncertainty. When we fail to manage the uncertainty, our strategy turns into a vapor. We remember it like a dream.

Why Plans Go Astray

How does the train get off the track? Many companies lack a consistent, repeatable method to 1) recognize and seize opportunities and 2) recognize and mitigate threats.

Companies fail to manage opportunities and threats in a systematic fashion. These companies fly by the seat of their pants and hope everything will be okay. Hope is not  strategy (or a process).

How to Embed Strategic Risk Management in Strategic Planning

Strategic Risk Management, a critical component of Enterprise Risk Management, is a  process for identifying, analyzing, and managing risks most critical to achieving an organization’s strategy and goals. Consider the following steps:

  1. Define the Vision, Mission, and Values. What is your preferred future? What is the purpose of your organization? What do you value?
  2. Define Long-Term Goals. What are the long-term goals (typically 3 year goals) to support the mission? These goals will likely be broader than your annual goals.
  3. Define Annual Key Performance Indicators (KPIs). What will you measure? For example, you may have a KPI for profit or expenses. What is the target for the KPI? How do you calculate the KPI?
  4. Define Annual Goals. Using the KPIs, we can define specific, measurable goals. For example: “To complete the year with a 5% increase in profit.” Cascade the goals. Lower level goals should align and support higher level goals. For example, you may have a hierarchy like this:
    • Corporate Goals (i.e. Enterprise Goals)
      • Business Goals (i.e. Business Unit or Division Goals)
        • Functional Goals (i.e. Department Goals)
          • Team Goals (i.e. Project Goals)
  5. Define Strategy. How will you get from your present state to the desired future state?
  6. Identify Risks. Here is where risk management comes into play. What are the opportunities and threats for each goal? Who are the risk owners?
  7. Analyze Risks. What is the priority of the risks? Which risks matter most? At a minimum, complete a Qualitative Risk Analysis to prioritize the risks. In some cases, you may wish to complete a Quantitative Risk Analysis.
  8. Plan Risk Responses. Develop the risk response plans for the highest risks.
  9. Build a Scorecard. Develop a scorecard where actual results are reported for each of the goals. Determine the frequency of reporting (e.g., monthly, quarterly, bi-annual, annual).
  10. Monitor and Control Risks. Periodically review the risks. Update assessments and response plans as needed.

Strategic planning and strategic risk management never ends. Regularly review and adjust the strategy. Each time the strategy is modified, identify risks, analyze risks, and plan the risk responses.

Question: Most companies are immature in strategic risk management. How would you recommend companies start?

Photo credit: iStockPhotos.com

 

 

 

 

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