For companies that embrace the concept, strategic risk management provides a formal mechanism for addressing exposures that can threaten the execution of an organization's strategy, along with a tool for helping organizations exploit the opportunities that can be the flip side of risk.

While some organizations might integrate strategic risk management into a broader enterprise risk management program, SRM is “a laser focus,” said Carol Fox, director of strategic and enterprise risk practice at the New York-based Risk & Insurance Management Society Inc. That program concentrates on strategy planning and execution “in a very focused and disciplined way.”

“It really is to physically focus on planning and strategic execution,” Ms. Fox said.

Seeing a number of different definitions of strategic risk management and a lack of consistency in discussions of what it entailed, RIMS provided its own formal definition of SRM in 2011. According to RIMS' definition, strategic risk management “is a business discipline that drives deliberation and action regarding uncertainties and untapped opportunities that affect an organization's strategy and strategic execution.”

Used effectively, strategic risk management can identify situations in which risk can be a competitive advantage instead of strictly a threat to a strategic plan.

“As you go down that maturity, ultimately the goal is you want to include risk in your decision-making process, improving the way you make decisions and the speed at which you can make decisions,” said Steve Zawoyski, a partner at PricewaterhouseCoopers L.L.P. in Minneapolis.

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In assessing their organizations' risks, some risk managers might tend to think, “If I start off with just hazards, I can move on to opportunities three years from now,” Mr. Zawoyski said. “Well, my caution is, if you only talk to people about hazards, all they think about is hazards.”

Strategic risk management can be integrated into a wider enterprise risk management program, Ms. Fox said. “We would argue that all organizations should have an enterprise risk management umbrella,” she said. But, acknowledging that many organizations for whatever reason are likely not to move toward ERM, Ms. Fox said those organizations can still embrace SRM, “in this case specifically focusing risk management practices in a strategic way.”

“Strategic risk management is an element and a necessary foundation for ERM,” said Mark L. Frigo, director of the Center for Strategy, Execution, and Valuation and the Strategic Risk Management Lab in the Kellstadt Graduate School of Business of DePaul University in Chicago. “It is often a missing element in existing ERM programs. And for organizations starting to develop ERM, it is a necessary foundation for building an effective and sustainable ERM program that creates as well as protects value.”

Mr. Frigo said SRM requires thinking differently about risk and uncertainty. “There are a number of obstacles for developing SRM that need to be overcome,” he said. “One obstacle is overcoming the status quo way of thinking about risk management in the organization.”

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“The thing that needs to be clear from the outset is you're really partnering with those who have responsibility for strategy,” Ms. Fox said. “There are certain organizations where it might be seen as, 'We don't want to talk about risk because that's the downside.'”

For strategic risk management efforts to succeed, the risk manager should be seen as a resource by those responsible for setting strategy, she said. “Helping them understand what's in it for them is probably the best approach,” she said.

The interest in SRM at many organizations is driven by a realization that their ERM efforts were missing many strategic risks and a sense that much of their risk assessment wasn't “at the level needed to address risks that threaten organizations' survival,” said Rupak Mazumdar, senior manager, enterprise risk management at George Weston Ltd. in Toronto.

At some organizations, “It's so difficult to put their hands around (strategic risks) in terms of these things happening that they omit them in their risk maps,” Mr. Mazumdar said.

Also, some believe enterprise risk management is too focused on operations, Mr. Mazumdar said. “I think there are some in the ERM community who would say if you would have done it properly, you would have captured the strategic risks. There are others who say no,” he said. “I think it's a debate that's still occurring in the risk management community.”

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DePaul's Mr. Frigo noted that ERM can take in a number of risks, some of which, while potentially harmful, don't threaten the organization's overall health or ability to meet its business objectives. However, recent events such as the 2008 financial market collapse and subsequent credit crisis offer examples of strategic risks that can threaten an organization's survival.

“These more significant risk exposures have given rise to a focus on strategic risks and strategic risk management,” he said.

Speaking to organizations' growing awareness of the need to address strategic risk, Marsh Inc.'s 2012 Excellence in Risk Management survey showed that 64% of C-suite and risk manager respondents listed a strategic view of risk and risk management's role as one of the top three abilities required to lead risk management.

Asked how risks can be better integrated into their organization's strategic planning goals, 51% of C-suite survey respondents said by adopting a formal strategic risk management process, while 45% said by involving risk management in the early stages of strategic planning.

“The good news is that many organizations are seizing the opportunities and integrate risk management deeply into their strategic planning,” said Brian Elowe, managing director in Marsh's global risk management division in Boston, during a June 20 webinar discussing strategic risk management. But other organizations have yet to do so, he said.

George Weston's Mr. Mazumdar said he's still making up his mind about the need for a distinct SRM discipline in addition to ERM. “I can see the pros and cons of both,” he said.

At present, George Weston is dealing with its strategic risks through its enterprise risk management process by making sure the ERM process is closely tied to the company's strategic planning process. “They're done in parallel,” Mr. Mazumdar said.

“It's all in the execution,” he said. “Both ways can fall flat if you don't do it right.”

This story is from the September 10, 2012, issue of the weekly print edition of Business Insurance, a special issue featuring how corporations and other entities are implementing strategic risk management.

Copies of this issue, which includes a data poster featuring statistics on how SRM is being used, are available for $100 by contacting our Single Copy Sales department at 888-446-1422.

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