Managing strategic and operational risk

A man holds a domino game with his hands

Risk management enables a company to evaluate the opportunities and risks so that it can meet the objectives set, even if daily occurrences do not match expectations. Here’s an explanation.

Not everything in life goes to plan. It's the same for companies: an important member of staff resigns in the middle of a strategically important project. A machine breaks down in the middle of the manufacturing process. An important supplier goes bankrupt. A long-time customer switches to your competitor.

In principle, risk management involves continuously analyzing and evaluating events, actions and developments that could stop the company from reaching its objectives and fully implementing its strategy.

There is a distinction primarily between corporate risk management and operational risk management. Corporate risk management is the difference between the company’s strategy and operational risk management.

Graphic. Shows that Corporate Risk Management bridges the gap between managing strategic and operational risks — Source: KMU-Magazin/Sicherheitsinstitut Zurich

Corporate risk management involves analyzing, evaluating and managing any risks that a company may face in terms of its management, organization, markets, environment, sales procedures, finances, employees, IT system, etc. Moreover, it concentrates on the proper functioning of the company’s strategy. As a rule, companies adopt a top-down approach, analyze the worst-case scenario and draw up a risk profile.

Operational risk management enables the potential risk to a company and its commercial procedures to be analyzed systematically over the long-term. Each risk has its own importance.

The risk management procedure should be seen as a control system thanks to which operational management results are integrated into the strategic management objectives.