Strategy and Risk – Two Sides of the Same Coin

At Board level, risk is a key topic. The Board sets the risk appetite for the company, deciding what levels of risk the company will tolerate, as well as defines a policy for risk identification and management. It’s up to the CEO and executive to manage risk.

I think it’s fair to say, certainly from my experience, that small and medium sized businesses without an advisory board, rarely have a structured approach to identifying and managing risk.

While many strategies will entail an element of risk that needs consideration, each are of potential risk needs its own strategy to address and mitigate the risk.

Here’s a very simple approach I’ve created to help you to identify potential risks to your business that in turn will require a strategic approach to manage:

  1. What are the risks to your economy?

These would include things like trading terms with other countries (for example, Brexit and its impact on the UK), exchange rate variations due to the value of currencies in major trade counties, flows of imports and exports relative to other economies. Are these risks foreseeable and manageable, or could there be risks that upend your economy and your business?

  1. What are the risks to your industry?

We’ve all seen the impact of industry disruption, which is just another term for innovation leading to new business models. Technology is usually the enabler. A brainstorming session is definitely worth having on this question. Will you react to the risks, or will you create the changes within your own industry that others have to respond to?

  1. What are the risks to your company?

New competitors entering the market (such as Amazon into Australia as a major retailer), clients being lost or choosing to leave you, suppliers and supply chains being cut off or impacted by price or availability – these sorts of risks happen all the time in all industries and at the very least should be on your radar with a strategy to address.

Categorise these into:

  1. Highly likely; high impact
  2. Highly likely; low impact
  3. Low likelihood; high impact
  4. Low likelihood; low impact

As a priority, you would need to develop a strategy to address 1) as a priority, as well as 3), because if those risks do eventuate, the impact will be significant.

In your next strategic planning retreat, ‘risk’ should definitely be an agenda item using the above process to work through.