Strategic Risk Management
Traditionally, the discipline of risk management has been devoted to addressing threats of accidental loss. In this traditional insurance-and-safety context...
Traditionally, the discipline of risk management has been devoted to addressing threats of accidental loss. In this traditional insurance-and-safety context, the most risk management could ever accomplish was to reduce or eliminate losses from accidents, so that organisation could, at best, "safely remain as it always has been." This perspective has not addressed no accidental risks of loss from poor business judgment or from errors in forecasting client needs; nor has it entertained the possibility for gain from risk.
Strategic risk management embraces both the upside and downside of risk.
Strategic risk management seeks to:
- counter all losses, both from accidents and from unfortunate business judgments, and
- seize opportunities for gains through organisational innovation and growth
The result is that risk management, at its best, enables your organisation to "be all it can be." Most organisations actively seek change. The sought-after change might be the well being of the constituents or communities that are the focus of the organisation's mission. For any organisation to succeed its world must change; it cannot stand still, or expect to remain perfectly stable. Organisations exist in the larger world, which by its very nature changes.
So here is the paradox: Change brings risk, but without change and the attendant risk there could be no progress. Organisations are about progress, thus they are about change, and need to learn to tolerate a level of instability, unpredictability, risk.
An organisation cannot do business without incurring some level of risk, just as a human being cannot exist without incurring some level of risk
What you expect the future to bring, and how you prepare for your vision of the future, greatly affects the amount of risk confronting the organisation you manage. If you have one set of very specific expectations for your organisation's future, and thus are unprepared to accept any other version of the future should it occur, then your organisation faces great risk. You will have no plans, other than Plan A. Strategic risk management is about visualising other scenarios of the future and having a Plan B, a Plan C and perhaps a Plan D in your hip pocket. This will lessen the surprise for the organisation (Herman & Head, 2000).