A leader’s guide to strategic risk management

Abstract

Purpose – Many firms did not have mechanisms in place prior to 2007 to identify and track the weak signals of an impending financial crisis, and as a result they were not prepared for the stresses and opportunities the crisis generated. The author aims to offer a guide to identifying these weak signals and a system for mitigating the risk of being hurt by another such crisis. Design/methodology/approach – This is a guide to strategic risk management (SRM), which defines a process of identifying, assessing and economically managing potentially enterprise-threatening losses. It is a way to mitigate developing ambiguous threats before they manifest themselves and then spiral out of control. Findings – Corporate leaders can follow the example of savvy investors who use risk management insights to mitigate the effects of a potential crisis and to profit from one if it develops. Practical implications – Market pressures can cause firms to loosen product or investment standards incrementally, which over time can radically change a business model’s risk profile without anyone acting to mitigate it. Originality/value – This guide to Strategic Risk Management provides insight into how corporate leaders can identify the “weak signals” of a financial crisis well before the actual crisis develops and also describes how they can mitigate financial risk in their portfolios and make opportunistic investments and adopt hedging strategies at very favorable price levels.