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5 sources of strategic risk

1. 5 Types of Strategic Risk 1. The potential for … 2. You may not have enough volume and focus to generate sufficient continuous improvement of products, sales and operations to sustain profitability and competitiveness. Financial risk is embedded in all risks, since the impact of all risks is ultimately financial. Yet, when sales and revenues plummeted in a recession, they didn’t have any new products or markets to fall back on. These include natural disasters, facility fires, or an economic crash. A small company can’t afford to split its focus. Strategic risks are determined by board decisions concerning the objectives and direction of the organisation. Remember, risk sources may be internal or external to the organization. These include: 1. Many of the easy-to-get oil and gas is already tapped out, or in the process of being … A company’s strategy is a mix of exploration and exploitation. After a painful downsizing, they acquired a new business, enabling them to survive the decline of their core market. Slide 3 of 9 There are five main sources of risk in an agricultural operation: production risk, marketing risk, financial risk, legal risk, and human resource risks. These conditions are a function of the business strategy chosen by top managers. Risk #2: Unpredictable, high-impact events. There are more ways to lose a customer than poor performance on Acme’s part.”. Although strategic planning is not listed as a resource category, it is critical to the overall success of any operation. Every year, your company, your competition, and your industry can get smarter through an additional twelve months of experience. When Acme Manufacturing learned that a major customer (Groot, which was 20 percent of Acme’s business) had just filed for bankruptcy, the Acme CEO told his senior executive team they’d need to cover the loss of Groot’s business, write off more than two months of receivables, and absorb the cost of a sizable inventory of custom parts and raw materials. They made their company more robust through an integrated disaster recovery program. Given their low volume, SWT Services started losing money on the staffing service. Livestock price and weather variability and livestock diseases were perceived as important sources of risk for livestock production. Everyone knows that a successful business needs acomprehensive, well-thought-out business plan. Let’s look more closely at the three that can smother you over time. They manufactured products that enabled military users of legacy systems to build replacement applications that communicate with ships and planes still using a fifty-year-old interface. Over the years, the company had discussed developing additional products for their theater customers, as well as searching for new markets for their product. Governance 2. Two have the potential to wipe your company out overnight (discussed in a previous post), and three, while unlikely to wipe out a company overnight, could smother it over the next three to five years. Fun Foods was saved by its aggressive acquisition strategy. So, your strategy must include a roadmap of how you will become more competitive. They didn’t wait for an actual disaster to verify that a disaster recovery plan worked. Sources for identifying risks 3. 3. Role of Strategic Advisor Typical risk sources include: [1] Threat: The sensitivity of the program to uncertainty in the threat description, the degree to which the system design would have to change if the threat’s parameters change, or the vulnerability of the program to foreign intelligence collection efforts (sensitivity to threat countermeasure). At least once a year, review your company strategy and verify the balance between exploration and exploitation. Strategic risk can arise from three basic sources. What if they go bankrupt? Classification of risks ... Risk identification must be systematic and begin by identifying the key objectives of ... strategy chosen into specific plans, by means of an effective allocation of resources. recessions, wars, structural changes in the economy, and changes in consumer preferences. It’s the risk that your company’sstrategy becomes less effective and your company struggles to reach its goalsas a result. Best Systems knew it would just be a matter of time before their market evaporated. Reckless Risk-Taking. Hence, risk identification can start with the source of problems, or with the problem itself. It’s challenging enough to generate a competitive volume within a single niche, never mind three. There are five major sources of strategic risk. They were open to obtaining that new business by growing it organically or through acquisition. Acme made sure that everyone in the company understood the importance of fully supporting even small, trial orders from customers in the new market. SWT Services provided three services: staffing, web design, and technical writing. It represents undertaking … Best Systems’ five-year strategy spotlighted the need to identify, develop, and grow a new business to over 20 percent of total revenue. Supplier social and environmental responsibilities are becoming a larger factor in assessing risk in a supply chain as product safety regulations continue to be proposed and passed into law. I’ll discuss the next three strategic risks in a future post. At a strategic planning meeting seven years before Groot’s bankruptcy, Acme’s executive team had identified the loss of Groot’s business as its biggest potential threat. It could be due to technological changes, a powerful new competitoren… Acme became more watchful about maintaining accounts receivables, and more conservative about purchasing equipment and hiring full-time employees to meet growing demand from Groot. •Strategic Advisor Source: Enterprise Risk Management Today’s Leading Research and Best Practices for Tomorrow’s Executives, John Fraser and Betty J. Simkins, 2010 Wiley and Sons Chapter 5 Becoming the Lamp Bearer: The Emerging Roles of Chief Risk Officer . A serial entrepreneur, whose previous roles include managing a multi-billion dollar product line profitability for Dell and an Executive with Razorfish. Risks are about events that, when triggered, cause problems. Formerly a leader in that niche, SWT now consistently lost opportunities to a local firm that only provided staffing services and had more assignments in a month than SWT had in a year. But it’s also a fact of lifethat things change, and your best-laid plans can sometimes come to look veryoutdated, very quickly. In a business setting, managers must be sensitive to conditions that can cause specific categories of risk to become dangerous. Financial distress and strategic risk. In this context, there are a number of sources of risk for any business to consider, including risks from the marketplace, employee-related risks, and financing risks. Sources of risk in agriculture are classified into business risk and financial risk. Two have the potential to wipe your company out overnight, and three, while unlikely to wipe out a company overnight, could smother it over the next three to five years. Strategy Forecast Risk. This will cost a bit to get access to but is worth it when used well. Operational 3. Over 8000 Facebook Fans - Over 2000 LinkedIn Group - Over 8000 Subscribers - Over 100,000 Video Views, How to Manage the Five Sources of Strategic Risk (Part Two). These might include replacement technology, integration with another solution, or problem prevention/elimination. Financial 5. Source: Integration Point. Two have the potential to wipe your company out overnight, and three, while unlikely to wipe out a company overnight, could smother it over the next three to five years. The research question was: when a company faces a major market value decline which is a 30 percent relative decline, what was the main cause? Managing risk is a major element of the “chemistry of strategy.” You must understand strategic risks -- what they are, how to identify them, and how to assess and manage them from a strategic perspective. Each time you move along the Experience Curve, expect to figure out how to spend less to sell and deliver your product. Market risk includes a wide range of factors exogenous to securities themselves, including. 2. Examples include but not limited to corporate governance risk, merger & acquisition risk, change management risk, market stagnation risk, and financial risk. Sources of Strategic Risk A dictionary defines risk as the possibility of suffering harm or loss1. STRATEGIC RISK MANAGEMENT Why would risk-averse individuals and entities ever expose themselves ... 5 volatile earnings or stock prices have historically earned higher returns than firms in sectors with staid earnings and stable stock prices. The risk that your business strategy will be off the mark. Academic and Professional journals: from time immemorial, academic and professional journals have always been a source of uncommon information. There are five major sources of strategic risk. Regulatory Risk. Best Systems followed a dual product/market strategy. Superior Tubing’s Arkansas plant was destroyed by a tornado. A serial entrepreneur, whose previous roles include managing a multi-billion dollar product line profitability for Dell and an Executive with Razorfish. The risk of being unable to sell your investment at a fair price and get your money out … Building that acumen should be part of every company’s strategy. Superior Tubing’s planning team felt it was strategically important to integrate recovery into how the company ran, rather than create a plan to recover post-disaster. Are there more competitive solutions to the problem your current products address? Within sectors, there is some evidence For example, invalid … Strategic Risk Ownership. Five years prior to this, Groot had accounted for 80 percent of Acme’s business, but the executive team had recognized the risk of that concentration and forced themselves to diversify the customer base, just in case. Reckless risk taking is an enterprise value killer. The more times you do something, the less resources it requires, allowing you to produce more results for the same amount of resources, forming a virtuous cycle that makes you more competitive, assuming that your company follows a strategy of continuous improvement. Let’s look more closely at the two that can wipe you out overnight. Inflation Risk: A factor affecting all securities is purchasing power risk, or the chance that the purchasing. How is strategic risk different from other types of risk? Operational needs are immediate and can easily drive an unhealthy balance, with the most obvious risk to revenue coming from an unmanageable concentration (customers, suppliers, product, or market). They strategically position the company to withstand the foreseeable but unpredictable. Once a strategy is set, an institution needs to develop a view on whether the strategy is heading in the right direction, whether it has the talent and capabilities to meet the strategic objectives, and if there may be any consequences of the strategic choices that should be considered. One of the most detrimental risks is the one-of-a-kind competitor that emerges in the market and seizes most of the market share. Reputational I’ll explain each risk one at a time, ending with my perspective on the one that you must absolutely, positively use in your planning process. Competitors are one a company’s major sources of risk, whether from the threat of new products or lower cost structures. In this issue of Risk Angles, Henry Ristuccia answers five questions about strategic risk and offers fresh insights on how companies can use strategic risk analysis to both protect and create business value. Establish key performance indicators (KPIs) to measure results. None of their customers purchased more than one service. Managing this risk requires you to balance competing demands on resources. The risk that you lose ground to competitors as they improve and innovate. Top Nine Supply Chain Challenges for 2009; Portrait of Best-In-Class Risk … Innovation by its very nature is a risky business that requires attempting to know the unknown. Once exploration has identified major opportunities, successful strategies shift to the exploitation stage. Fun Foods’ business was built on supplying a single product to movie theaters. Risk Angles. They maintained sufficient financial reserves, standardized computer systems across all three plants, and put plants in multiple locations to reduce the risk of losing one. 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