Dealing with risks and opportunities professionally is becoming one of the key success factors in business. Most companies have realized the requirements turbulent markets present and started to adapt to this turbulence. But risks and opportunities are greater in turbulent markets, so they call for active strategic risk management.
Risk management – Turning risks into opportunities
As competition becomes fiercer (even "hyper-competitive"), and market cycles more volatile, markets are becoming more and more turbulent. To the individual business, this turbulence manifests itself through shorter innovation and product life cycles. At the same time, the range of products is increasing, planning horizons are getting shorter and establishing strategy becomes increasingly uncertain. To management, turbulent markets mean their companies' opportunities and risks are changing increasingly frequently, and hence must be quickly used/avoided. Dealing with risks and opportunities professionally is becoming one of the key success factors in business.
Most companies have realized the requirements turbulent markets present and started to adapt to this turbulence. But risks and opportunities are greater in turbulent markets, so they call for active strategic risk management.
The Roland Berger approach: strategic risk management makes businesses more responsive
Strategic risk management is a holistic approach to responsible business. It aims to create an optimum balance between security interests and value creation goals required to add value to business long term. We took quantitative risk management methods from the financial sector and qualitative methods from industry and created the Roland Berger approach to strategic risk management. By helping managers quantify and aggregate all the relevant operating risks involved, this approach helps them recognize their businesses' critical success and risk factors and use them.
Strategic risk management is therefore about identifying risks and opportunities of a business and taking action to counteract them, implement them and monitor their performance. There are two conditions that must be met before a risk management system can be introduced. First, risks must be comparable, so life-threatening events can be aggregated together. This is the only way of ensuring that a risk management system is not just a collection of individual potential risks and packages of action, but a way of recognizing potential existential threats throughout the business. Second, problem areas must be prioritized so scarce business resources can be used efficiently. A risk management system therefore consists of a risk management process and a risk management organization.
The process involves four steps that must be reiterated constantly, and which can be thought of as a cycle: