Wrong management decisions, as well as improper implementation of the right decisions and inadequate response to constant changes within the business environment, create situations in which strategic risks increase, when financial income and capital are at risk.
Reasons for the appearance
Strategic risks arise due to the incompatibility of existing policies and specific goals, if business plans developed specifically, the set goals do not meet. Also affected by the improper selection of resources that should be involved, and the quality of implementation of correctly selected resources.
Moreover, the properties of resources are not so important: they can damage the business and create strategic risks, being both intangible and tangible. This is the exchange of information through interaction channels, and operating systems, and networks for the provision of products and services, and management potential, and many other opportunities. Strategic risks should be primarily assessed within the organization with careful consideration of all factors of influence: supervisory, competitive, technological, economic and many more possible changes that occur in the external environment.
How to avoid
There should be a working system of strategic risk management. It consists, first of all, of regulatory documentation - regulations, policies, processes, procedures and the like, which are approved according to the form, taking into account the size of the organization and the complexity of its work.
To increase the effectiveness of strategic risk management, large corporations, as well as banks, use an additional analytical process (such as SWOT). Thus, the weaknesses and strengths of governance, existing threats and opportunities are determined. This is an effective measure to identify economic risks. Strategic goals must be achieved in safe ways.
Control system
The mandatory elements are included in the management system: strategic planning, risks of the economic plan, providing for, as well as taking into account the nature of the existing threat and the potential income from risky actions. A strategic plan is created, updated periodically according to changing market conditions. It is the plan that defines the organization's needs for resources - human, financial, technological. Legal support is required to include risk parameters in the main financial program.
A strategic risk analysis should be carried out, and this requires evaluations of all new initiatives in comparison with the already existing strategy plan and constant monitoring, showing the qualitative and quantitative level of implementation of the planned and all changes. The latter will provide the basis for revising initiatives or the current strategic plan.
Factors Required for Evaluation
Strategic risk assessment should take into account many aspects of the organization. The objectives, mission, values, corporate culture and, most importantly, the organization’s tolerance for risky actions are considered. Any enterprise considers strategic risks either as a danger or as an opportunity. Here, much more important is competent leadership in the execution, modification, implementation of the plan. The implementation of the strategic plan is assessed over the scheduled periods, the magnitude and frequency of changes in the occurrence of risks and the organization's attitude to them are measured.
The control tools and all the information systems available in the organization are considered in order to properly monitor the adopted business decisions. Even the public image of the organization and the influence on it of the chosen strategic position relative to competitors, products and technologies are calculated. The risk of strategic decisions on the opportunities brought by the reorganization of the structure, for example, accession or merger, is considered.
Strategic initiatives must be compatible with available resources and those planned for the future. The market position of the organization, its penetration into the market are taken into account - both the geographical level and the level of products are interesting here. The possibilities of diversification of the organization by clientele, geography, and products are considered. And finally, the results are evaluated: has the organization fulfilled the plan. Strategic risk factors determine whether the risk will be low, high or moderate, and changes may be diminishing, growing or stable.
Risks and damage to the interests of the country
The strategic risks of an organization can be classified by the magnitude of the threat, by the localization of its sources, by the mechanisms and areas of the threat and, finally, by areas of implementation. Any risks can damage national interests and worsen the prospects for sustainable development of the country's economy.
Two groups of factors can be identified here: external and internal. Challenges (external factors) are any negative changes in the international situation in both the political and economic spheres, since they are closely interconnected. And adverse trends in world development can be observed today.
Internal factors are the possibility of a crisis of social and economic systems, as well as the prerequisites for such a development. Most often this happens as a result of not making strategic decisions or making ineffective on priority aspects - environmental, technical, scientific, economic, social, political, military.
Strategic Risk Groups
By localizing the source of threats in the same way, both external and internal risks of a state scale are distinguished. External act on the socio-economic system of the state from the outside, and internal develop within a separate socio-economic system. The scale of the implementation of threats can be different - planetary, international and national.
These are natural hazards - natural disasters leading to an emergency. These are social disasters of a biological nature, such as epidemics of a cross-border and federal level, which are measured by severity. These are phenomena of the socio-political sphere - revolutions, wars, terrorist acts, as well as the economic sphere, which is also very painful: price collapses, sharp changes in exchange rates, default and the like.
Dangers to an individual organization
There are a number of reasons that explain the danger of risks to the organization with negative consequences. If such dangers are realized, the organization may lose market share, reduce sales and even leave the market altogether. There are situations when it is simply impossible to transfer the risk for an organization to a third party (an insurance company, for example). It is difficult to identify, foresee and systematize many strategic-scale risks, since they most often appear in the process of activity unexpectedly.
The risks are especially great in investments, finances, in the selection of personnel - depending on the type of activity of the organization. It is difficult to describe the quantitative scales of the estimated losses, because there are not only direct losses, but also indirectly affecting, and there are a lot of the latter. This is a reduction in profitability, loss of profit, damage to reputation and much more. A mistake in calculating the strategic potential of an organization entails even more complex consequences.
Grades are correct and incorrect
Erroneous estimates of the potential of the company are associated with errors in information about the technical and technological potential of the organization, since the diagnostic methods are different, and sometimes the choice is not adequate for this case. Also often ignored or missing information about a brewing technological leap in the industry of this industry. Managers sometimes incorrectly assess the degree of autonomy of their organization, when it is much more dependent on extraneous structures - industrial or commercial, than it is considered.
Situations are also possible when an incorrect assessment of the division of rights regarding property is set up; in fact, the situation there is completely different. The same thing with the rights to manage and own land, productive assets, income and the like. But the most common error in assessments is the forecast of the dynamics of socio-economic changes in the external environment. If the strategic risk scenario is not drawn up correctly, the developed organization development plan cannot be implemented, moreover, the consequences can be very deplorable.
Features of risk analysis
It is better to start the analysis with establishing characteristics and identification, where the risk is considered relative to the object of occurrence. Thus, it is possible to determine the nature of the occurrence of risk and give a detailed description of it. The identification stage involves the establishment of a sequence of actions in general or standard approaches when acquaintance with the features of the organization occurs. This is a close communication with all responsible persons in departments, a comparison of current results of work with expected indicators.
The main procedures for risk analysis: searching and identifying all possible alternatives for solving a particular problem, assessing the consequences in economic terms after the implementation of the decision, characterization of all adverse effects that negatively affect the result, then an integral assessment of strategic risk follows. In the analysis process, the assessment differentiates the risks according to the degree of influence on the organization.
Strategy development for possible risks
Modern conditions force any organization to act in uncertainty, but strategic risks are mainly taken into account. All this is because they have some features that should be paid attention to. The definition of a strategy does not bring immediate results; usually, its completion ends with a clarification of the general direction, which will at least ensure the stability of the organization in the market.
When a strategy is being formed, nobody has managed to foresee literally all the risks and opportunities. Everyone uses generalized, often incomplete, sometimes inaccurate information. This usually only increases uncertainty.
Zone of uncertainty
Therefore, it is reasonable to foresee the existence of this peculiar zone, that is, to develop as many options for the development of the organization as possible, and only optimal ones, in accordance with a combination of external and internal conditions. Feedback when developing a strategy and calculating risks increases significantly: as soon as a new solution to a problem appears, one or another alternative arises.
It always takes into account the receipt of new information, additional, and therefore the search for solutions is more focused and is accompanied by the acquisition of an even more preferable solution. Initially set strategic goals can be adjusted many times and even rejected with the advent of new threats.
How to recognize risks
Strategic management uses a special methodology that teaches to determine not only existing risks, but also to predict the scale of future consequences - both negative and positive (yes, risk, as they say, is a noble cause, and there are times when you need to take risks for the chance that appears for the benefit of the organization). In this methodology, there are ways to evaluate the entire industry, and in particular competitors. And sometimes this information alone is enough to correctly assess the existing risks.
For example, using this technique, both potential and existing competitors are evaluated, and forecasts regarding buyers are separately considered. We study all existing substitutes for the products that the organization is engaged in. Finally, suppliers are evaluated on all sides. The first three factors will assess the business risks (the emergence of competitors, customer behavior, the level of demand - this is both profit and income in business). Managing existing risks is possible if managers evaluate them correctly.
findings
Risk planning and management are extremely interesting and the broadest technological methods of risk management. They are always based on certain errors that were made along with the adoption of decisions related to the development of the organization. And in order to manage risks strategically, you need to learn to see the business through and through with all its weak points, adequately assess each threat associated with the choice or change of strategy, and not lose sight of the risks in the course of its implementation.