Strategic Risk Management ? Consult Llewellyn

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Risk management is an independent management discipline within BTM? and should be strongly evident throughout all four phases of a business transformation and tightly woven with the other 7 management disciplines.

It is important to be aware of the fact that strategic risk concerns business risks and business decisions and adopts a top-down approach, whereas operational risk addresses risks of a specific business transformation using a bottom-up approach. While project and programme managers would typically be concerned with risks at the operational level, business transformation managers need to maintain a broader focus on risks that encompass both operational and strategic risks.

Strategic risk concerns business risks and business decisions and can impact the ability of a company to achieve strategic objectives. Whereas operational risk concerns risks that can impact a specific transformation and threaten the extent to which it can achieve its objectives.

Strategic risk management helps to:

1. Identify key inter-dependencies among internal and external risk drivers
2. Identify possible disruptive factors from external risk drivers

Strategic risk is inherent in strategy creation and execution, consisting of possible events and scenarios that could compromise an organization?s ability to achieve its strategic objectives, and threaten commercial interests or intangibles such as reputation. It can be separated into internal and external sub-divisions, with internal risks often being more predictable and more easily managed because they reside within the organization.

While strategic risk management is a critical activity for all leaders to undertake, in the context of a business transformation it is important that the business transformation manager filters out strategic risk which is not relevant to the transformation initiative; however any strategic risk which is irrelevant to the transformation (but relevant to the broader business) should without doubt be addressed from elsewhere within the organization.

In the Jan-Feb 2013 issue of Harvard Business Review, Paul J.H. Schoemaker, Steve Krupp, and Samantha Howland wrote ?

?Most organizations and leaders are poor at detecting ambiguous threats and opportunities on the periphery of their business. Coors executives, famously, were late seeing the trend toward low-carb beers. Lego management missed the electronic revolution in toys and gaming. Strategic leaders, in contrast, are constantly vigilant, honing their ability to anticipate by scanning the environment for signals of change.?

Using the above Coors example, hindsight and a hypothetical scenario, a business transformation manager responsible for developing a new high-carb beer at Coors should have identified and analysed the strategic risk of the trend towards low-carb beers. Indeed the response might well have been to stop the initiative and re-evaluate strategic direction.

Having stepped inside dozens of companies around the world, I have often observed how many people become so absorbed in their own corporate world that nothing outside seems to matter. The reality is that what is happening on the outside can bring a company to its knees if not seen or ignored. Alternatively, huge improvements can be enjoyed if companies are prepared to embrace external practices in an effort to improve their ways of working (but I digress).

Identifying and assessing strategic risk can be challenging, but scenario planning provides a business transformation manager (or any leader) with the ability to explore and prepare for several alternative futures. It examines the outcomes a company might expect under a variety of operating strategies and economic conditions. Couple scenario planning with quantitative techniques, and you have a tool-set that will help to capture a whole range of possibilities in detail.

Scenario planning starts by dividing our knowledge into:

1. things we believe we know something about
2. elements we consider uncertain or unknowable

By identifying basic trends and uncertainties, a manager can construct a series of scenarios what will help to compensate for the usual errors in decision making ? over-confidence and tunnel vision.

History books are full of tales about leaders who have (with great confidence) made terribly wrong assumptions about the future. These days, transformation managers and leaders have the scenario planning tool to help them avoid such mistakes and expand their imaginations and benefit from having a less blinkered view of potential future scenarios.

To learn more about scenario planning I recommend watching a collection of videos which Dr. Paul J.H. Schoemaker produced and published on his web site here

Along with a library of resources listed here

The French scientist Louis Pasteur wrote: ?Chance favours only the prepared mind?.

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Source: http://www.consult-llewellyn.com/strategic-risk-management/

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