Enterprise Risk Management, 2nd Edition

CHAPTER 3Strategic Risk Management: The Third Paradigm

 

PAUL C. GODFREY

William and Roceil Low Professor of Business Strategy, Marriott School of Business, Brigham, Young University

 

KRISTINA NARVAEZ

Supplier Risk & Contingency Manager, Intermountain Health Care

 

EMMANUEL LAURIA, DBA

Chief Executive Officer, KB Risk Solutions, LLC

 

JOHN BUGALLA

ERM Insights

 

INTRODUCTION

Today's business world is increasingly volatile, uncertain, complex, and ambiguous (VUCA), and one sees more, not less, VUCA on the horizon. Traditional forms of risk management, the first paradigm, flourished in a world that was moderately volatile, but not uncertain, complex, or ambiguous. Enterprise risk management, the second paradigm, arose to deal with increasing volatility and complexity. Neither tool works in an environment that is highly uncertain and ambiguous—the world of today. Strategic risk management (SRM) represents a third paradigm and a better way to navigate a VUCA world. SRM is a set of principles, processes, teams, and tools for managing strategic risks, those exposures that create threats to or opportunities that expand competitive advantage. To successfully implement SRM, executive teams must understand the foundations of strategy and strategic risk, employ mindsets consistent with SRM, and create organizational structures and cultures supportive of SRM. By doing so, organizations will have a powerful tool to manage a VUCA future.

Most businesses engage in some type of strategic ...