The challenges of Strategic Risk Management

Abstract

Managing risk has always been a vital ingredient to successful companies and can be seen as a competitive advantage if managed right. Of the various types of risks, strategic risks have historically caused 86 percent of companies' signi cant losses in market value, while only 6 percent of risk management auditor time are spent on that type of risk. This relationship stresses the importance of developing e ective Strategic Risk Management (SRM), an activity which can be de ned as assessment and management of risks and uncertainties with external characterization relatively a company - an activity not many companies manage successfully. This thesis aims to identify main factors which drive the complexity of applying risk management best practice tools to a strategic risk. The research applied a case study design at Saab Group to provide an example of a strategic risk assessment and to analyze the process' outcome. The risk assessment process that was created and performed in the case study can be divided into the following four sections: (1) understand the process that caused the strategic risk, (2) Risk Workshop, (3) Bowtie Model and (4) Heat Map & Papa Model. The rst step was done as an input to the Bowtie Model and background to the Risk Workshop. The results from each step was then analyzed to understand what factors driving the complexity of a strategic risk. The factors driving the complexity of a strategic risk consist of three main traits. First, the uncertainty of a strategic risk event's outcome makes reliable evaluation challenging. Second, the external origin of the strategic risk makes it more di cult to quantify risk impact and probability of the risk's occurrence. Third, the opportunity potential that was found in a strategic risk was not explored su ciently, nor documented by the industry best practices for risk management, making risk assessment more unbalanced.