Strategic risk

Strategic risk (strategy risk) is a risk associated with company's strategic plan and its implementation. It is an object of strategic risk management and one of the most important factor in monitoring and controlling company's results. Strategic risk could arise from bad implementation of strategic plan, low motivation, bad leadership, mistakes made during decision making process, bad information and external factors such as competition, political instability, blocked access to important resources, societal change. The interpretation of the concept of strategic risk is quite extensive and varies depending on the source and area of ​​the scientific discipline. In the strategic risk management sciences, the risk of failure to achieve the goals included in the strategy as well as internal and external factors that could potentially jeopardize the achievement of the assumed strategic goals was determined. It can therefore be concluded that the strategic risk has two perspectives: the internal one related to the management and external processes, including the implementation of risky strategies, and thus determined by the environment and turbulence occurring in it. Strategic risk is related to the long-term activity of the company on the market, its growth, dynamics of development, decision-making and the implementation of business goals. Therefore, the strategic risk is associated with strategic choices in the company, at risk of failing to achieve the assumed strategic goals. Strategic risk can be defined as factors affecting the company's ability to achieve the assumed strategic goals. Identifying these factors well in advance and responding appropriately to threats related to unstable and uncertain environments is an action supporting strategic decision making about the future of the company. Strategic risk can also be defined as the risk of loss resulting from an unsuccessful strategic business decision

Classification of strategic risk

The criterion according to which the risk can be classified is the criterion of time horizon. It divides the risk into:

• operational risk,
• strategic risk.

Operational risk is a short-term risk related to the entity's operations, and strategic risk is a long-term risk related to making longterm decisions.

Associations of strategic risk

Banking risk, otherwise known as the banking activity risk, consists of two broad risk groups, namely its composition includes:

• strategic risk,
• operational risk.

Strategic risk is a risk that affects the bank's competitive strength in the long run and is associated with:

• shareholder structure and capital links,
• business profile,
• management system,
• organizational structure.

Forms of strategic risk

Strategic risk can take many forms that are different from such known threats as:

• failure to take over the company,
• launching a new product on the market,
• the emergence of new technology on the market, as a result of which the existing product is losing its relevance.

Method of overcoming strategic risk

The method to overcome dangers is the ability to assess risks and take appropriate countermeasures. Strategic risk taking is connected with making decisions and actions without some knowledge regarding future results and is usually associated with the involvement of financial resources. Strategic risk is focused on new opportunities, achieving possible profits in the longer term and overcoming defensive thinking that protects the company's current status quo, setting the company's thinking towards an offensive side

Strategic risk — recommended articles

Business plan — TOWS analysis — SWOT analysis — Crisis management — Opportunity risk — Strategic planning tools — Nature of strategic management — Strategic management — ASTRA analysis

References

• Beasley, M. S., Frigo, M. L., & Litman, J. (2007). Strategic risk management: Creating and protecting value. Strategic Finance, 88(11), 24.
• Chassang, S., & Miquel, G. P. I. (2010). Conflict and deterrence under strategic risk. The Quarterly Journal of Economics, 125(4), 1821-1858.
• Damodaran A. (2008). Strategic Risk Taking: A Framework for Risk Management, Wharton School Pub
• Doherty N. (2000). Integrated Risk Management : Techniques and Strategies for Managing Corporate Risk: Techniques and Strategies for Managing Corporate Risk, McGraw Hill Professional
• Frigo, M. L., & Anderson, R. J. (2011). What is strategic risk management?. Strategic Finance, 92(10), 21.

Footnotes

Author: Martyna Miszczak