Implementing Enterprise Risk Management

CHAPTER 15Strategic Risk Management

INTRODUCTION

As a member of the board of directors or senior management, which risks should you be most concerned about?

Recent business headlines have focused attention on Federal Reserve interest rate policy, economic slowdown in China, declining oil prices, Middle East instability, international and domestic terrorism, and cybersecurity.

In its Global Risks Report 2016, the World Economic Forum identified five top worldwide risks with the greatest potential impact:

1. Failure of climate change mitigation and adaptation
2. Weapons of mass destruction
3. Water crises
4. Large-scale involuntary migration
5. Severe energy price shock

It is the job of those tasked with risk oversight or risk management to consider these macro-risks, but more importantly, to optimize their company's risk-return profile based on the interactions of these macro-risks and the specific risks that are unique to their industry and business model.

The nature, level, and velocity of risks have changed in the past and will continue to change in the future. One risk in particular that should always be at the forefront of risk management is strategic risk. Strategy provides the overall plan for an organization to achieve its core mission and increase value to its key stakeholders (e.g., customers, employees, shareholders, regulators, etc.). Strategic risk can result throughout the strategy development and implementation processes, including:

• Design and development of the corporate ...