Incorrect management decisions, as well as inappropriate implementation of the right decisions and inadequate response to constant changes within the business environment, create situations in which strategic risks increase, when financial flows and capital are at risk.
Reasons for appearance
Strategic risks arise from the incompatibility of the current policy and the set specific goals, if the business plans developed specifically do not meet the set goal. It also affects the incorrect selection of resources that should be involved, and the quality of the implementation of correctly selected resources.
Moreover, the properties of resources are not so important: they can harm the business and create strategic risks, being both intangible and material. This includes the exchange of information through interaction channels, and operating systems, and networks for the provision of products and services, and the potential for management, and many other opportunities. Strategic risks must first be assessed internally.organizations with careful consideration of all factors of influence: supervisory, competitive, technological, economic and many more possible changes occurring in the external environment.
How to avoid
There must be a working system of strategic risk management. It consists primarily of regulatory documentation - regulations, policies, processes, procedures, and the like, which are approved in accordance with the form, taking into account the size of the organization and the complexity of its work.
To improve the efficiency of strategic risk management, large corporations as well as banks use an additional analytical process (such as SWOT). Thus, the weaknesses and strengths of management, existing threats and opportunities are determined. This is an effective measure for determining economic risks. Strategic goals must be achieved in a safe way.
Control system
Mandatory elements are included in the management system: strategic planning, economic plan risks that provide for and also take into account the nature of the existing threat and potential income from risky actions. A strategic plan is created and updated periodically according to changing market conditions. It is in the plan that the organization's needs for resources are determined - human, financial, technological. Legal support is needed to include risk parameters in the main financial program.
Strategic risk analysis must be carried out, and this requires assessments of all newinitiatives 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 give rise to a review of initiatives or the current strategic plan.
Factors needed for evaluation
Strategic risk assessment must take into account many aspects of the organization's activities. The goals, 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, competent management of the execution, modification, and implementation of the plan is much more important. The implementation of the strategic plan is assessed for the planned periods, the magnitude and frequency of changes in the occurrence of risks and in relation to them of the organization are measured.
The controls and all information systems available in the organization are considered in order to properly monitor the business decisions made. 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. Considers the risk of strategic decisions on the opportunities that reorganization of the structure brings, for example, accession or merger.
Strategic initiatives must be compatible with existing resources and those planned for the future. The market position of the organization, its penetration into the market are taken into account - here the geographiclevel, and the level of products. The possibilities of diversifying the organization in terms of clientele, geography, and products are considered. And finally, the results are evaluated: whether the organization has fulfilled the planned plan. Strategic risk factors determine whether the risk will be low, high or moderate, and changes can be decreasing, increasing or stable.
Risks and damage to the interests of the country
Strategic risks of an organization can be classified by the scale of the threat, by the localization of its sources, by the mechanisms and areas of the threat, and, finally, by the areas of implementation. Any risks can harm national interests, worsen the prospects for sustainable development of the country's economy.
Here we can designate two groups of factors: external and internal. Challenges (external factors) are any negative changes in the international situation, both in the political and economic spheres, since they are closely interrelated. And unfavorable 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 development. Most often, this is the result of not making strategic decisions or making ineffective ones in terms of priority aspects - environmental, technical, scientific, economic, social, political, military.
Strategic scale risk groups
By localizing the source of threats, both external and internal risks of a national scale are distinguished in the same way. External influence on the socio-economicsystem of the state from the outside, and internal ones develop within a separate socio-economic system. The scale of the implementation of threats can be different - planetary, international and national.
These are dangerous natural phenomena - natural disasters leading to an emergency. These are social disasters of a biological nature, such as cross-border and federal epidemics, as measured by severity. These are phenomena of the socio-political sphere - revolutions, wars, terrorist attacks, as well as the economic sphere, which is also very painful: price collapses, sharp changes in exchange rates, default, and the like.
Dangers for an individual organization
There are a number of reasons why risks are dangerous to an organization with negative consequences. If such hazards materialize, the organization may lose market share, reduce sales, or even exit the market altogether. There are situations when it is simply impossible to shift the risk for an organization to a third party (an insurance company, for example). Many strategic-scale risks are difficult to identify, foresee and systematize, since they appear in the course of activity most often unexpectedly.
The risks are especially great in investments, finances, in recruitment - depending on the type of activity of the organization. It is difficult to describe the quantitative scale of the expected losses, because there are not only direct losses, but also indirect ones, and there are a lot of the latter. This is a reduction in profitability, loss of profits, damage to reputation andmuch more. And a mistake in calculating the strategic potential of an organization entails even more complex consequences.
Estimates correct and incorrect
Erroneous estimates of the company's potential are associated with errors in information about the technical and technological potential of the organization, since diagnostic methods are different, and sometimes the choice is stopped at insufficiently adequate for this case. Also often ignored or missing is information about the impending technological leap in the industry in this industry. Managers sometimes misunderstand the degree of autonomy of their organization when it is much more dependent on outside structures - industrial or commercial - than it is believed.
Situations are also possible when an incorrect assessment of the division of rights relating to property is made, in fact, the situation there is completely different. The same with the rights to manage and own land, production 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 scenario of strategic risks is drawn up incorrectly, the developed plan for the development of the organization will not be able to be realized, moreover, the consequences can be very deplorable.
Risk Analysis Features
It is better to start the analysis with the establishment of characteristics and identification, where the risk is considered relative to the object of occurrence. In this way, the nature of the occurrence of the risk can be determined and its detailed description can be given. The identification stage involves the establishment of a sequence of actions in general or standard approaches when getting acquainted with the characteristics of the organization. This is close communication with all responsible persons in the departments, comparing current performance with expected performance.
Basic risk analysis procedures: search and identification of all possible alternatives for solving a particular problem, assessment of the consequences in economic terms after the implementation of the decision, characterization of all side effects that negatively affect the result, then an integral assessment of strategic risk follows. In the process of analysis, the assessment differentiates risks according to the degree of impact on the organization's activities.
Developing a strategy for possible risks
Modern conditions force any organization to act in uncertainty, but strategic risks are mostly taken into account. All this is because they have some features that you should pay attention to. The definition of a strategy does not bring immediate results, usually its completion ends with a clarification of the general direction, which at least will ensure the stability of the organization in the market.
When a strategy is just being formed, no one has been able to foresee literally all the risks and opportunities. Everyone uses generalized information, often incomplete, sometimes inaccurate. This usually only increases the uncertainty.
Zone of uncertainty
Therefore, it is reasonable to foresee the existence of this peculiar zone in advance, that isdevelop 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 in developing a strategy and calculating risks increases significantly: as soon as a new solution to a problem appears, certain alternatives appear.
Here, the receipt of new information, additional, is always taken into account, and therefore the search for solutions is carried out more purposefully and is accompanied by the acquisition of an even more preferable solution. Initially planned strategic goals can be adjusted many times and even rejected with the emergence of new threats.
How to recognize risks
Strategic management uses a special methodology that teaches to determine not only existing risks, but also to anticipate the scale of future consequences - both negative and positive (yes, risk, as they say, is a noble cause, and there are times when it is necessary to take risks for the sake of the chance that arises 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, both potential and existing competitors are evaluated using this method, forecasts regarding buyers are considered separately. All existing substitutes for products in which the organization is engaged are studied. And finally, suppliers are evaluated from all sides. The first three factors will assess business risks (the emergence of competitors, customer behavior, the level of demand - this isprofit, and business income). Management of existing risks is possible if managers evaluate them correctly.
Conclusions
Risk planning and management are the most interesting and widest technological methods of risk management. They are always based on certain mistakes that were made along with the adoption of decisions related to the development of the organization. And to manage risks strategically, you need to learn to see through the business with all its weaknesses, 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.
