Every board decision carries the potential for negative outcomes. To navigate these risks, leaders must proactively evaluate each aspect of their business and decide whether accepting a known risk is reasonable. A strategic risk assessment helps identify and mitigate these risks effectively.
Read on to learn how a risk assessment benefits your organization, what steps to take when building a comprehensive risk profile, and how board management software helps organizations minimize risk.
What Is a Strategic Risk Assessment?
A strategic risk assessment is the process for identifying, evaluating, and managing risks that could impact an organization’s long-term goals, competitive position, or overall success. In this scenario, a risk assessment matrix may be a valuable tool to mitigate risks efficiently and effectively.
A well-executed strategic risk assessment helps organizations proactively manage potential risks, align risk management with business objectives, and make informed decisions to protect the long-term stability of the organization.
Boards often include the risk assessment process in their larger enterprise risk management framework and strategic plan. Failing to adequately assess potential risks can significantly impact a business’s reputation, revenue, and long-term success.
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Benefits of a Strategic Risk Assessment
Here are 5 key benefits of performing a strategic risk assessment at your organizations.
1. Proactive Risk Management
Making informed decisions that avoid excessive risk is always better than trying to recover from a misstep that derails key objectives. When your board understands the potential risks of each option, it can prepare proactive responses, rather than scrambling for solutions after the damage is done.
2. Better Decision-Making
A board of directors can make more informed decisions when it understands the potential risks facing the organization. This information identifies potential concerns and outlines strategies to contain the risk.
3. Regulatory Compliance and Governance
Strategic risk assessments help boards actively comply with legal regulations and industry standards that affect their organizations. These rules exist to reduce risk, and aligning with them helps boards avoid costly oversights. Since regulations often evolve, regularly updating strategic risk assessments allows boards to stay ahead of changes and implement new solutions as needed.
4. Increased Organizational Resilience
Organizations that develop response plans before issues arise recover faster than those that react on the fly. With a plan in place, they can begin mitigation immediately after identifying a problem.
5. Competitive Advantage
Businesses that continuously assess strategic risks gain a competitive edge. By understanding what their customers and industry expect, they can act proactively rather than reactively. This efficiency frees up time and resources to focus on delivering the best possible customer experience.
How to Conduct a Strategic Risk Assessment
A strategic risk assessment is an ongoing process that involves identifying and prioritizing risks, determining the most appropriate response, and continuously evaluating if risk management measures are effective
1. Identify Risks
Work with your risk committee to evaluate your organization from all angles to give your board a full view of potential risks. Identifying these risks is the first step in deciding how to address them.
2. Analyze and Prioritize Risks
After listing the strategic risks that could impact your organization, determine the most high-profile risks. By analyzing data, your board can spot the most serious threats, especially those that exceed your risk tolerance, and focus resources to address them.
3. Develop Mitigation Strategies
Next, decide how to reduce the impact of each threat. This means choosing strategies and actions that carry manageable risks while avoiding those with higher potential harm. While strategic risk management focuses on big-picture decisions, other approaches may zero in on protecting data or financial assets.
4. Monitor and Review
Boards must continuously evaluate how their strategies perform and adjust as needed. Many strategic risks involve fields or topics that evolve quickly, such as emerging technology, new laws, and regulations.
5. Finalize and Distribute Agenda
Use secure software like OnBoard to distribute your finalized strategic risk agenda, ensuring all board members and stakeholders can access it safely and easily. Keeping your team informed about the board’s decisions and the reasons behind them promotes transparency and helps everyone understand their role in supporting those actions.
Examples of Strategic Risks
Organizations face a wide range of strategic risks. Some common examples include:
- Regulatory risks
- Financial risks
- Reputational risks
- Technological risks
- Competitive risks
Getting Started With OnBoard
A board management software program streamlines strategic risk management and organizes the information your board gathers in the process.
OnBoard equips your board of directors with the tools they need to stay informed and play an active role in minimizing business risks. OnBoard offers a secure alternative to social media for communication, provides easily accessible document storage for risk-management strategies, and includes additional features that empower your board to lead a low-risk organization.
Download our Board Management Software Buyer’s Guide to discover what to look for when selecting the right solution for your board.
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About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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