Understanding risk and its impact on strategic plan quality

Understanding risk and its impact on strategic plan quality

Risk is defined by those elements which promote failure instead of success in one’s endeavors. Given that strategic planning is designed to guide an organization to success in today’s dynamic market place, identifying risks must become part of that planning and be carried through plan execution.   Changes in the competitive landscape are occurring faster than ever.  A wide variety of influences including the impact of technology, shifts in competition from unusual sources, and rapidly shifting governmental/regulatory environment can be disruptive, even to the most effective organization.  When these changes are added to traditional risks such as resource utilization, workforce expansion, and operational effectiveness, it is clear that risk management becomes part of initial planning as well as ongoing execution of any suitable strategy.  

Understanding the elements of risk in the strategic plan is essential to the identification, management, and mitigation of potential failure.  Using risk management to assess the quality of a given plan, understand the plans sensitivities to risk, and the ability to mitigate the impact of risk on the strategic plan, can differentiate between success and failure.  By understanding the potential impact of risk to the plan, its strategies, goals, and objectives, it is easier to develop and execute mitigation approaches that minimize the overall negative impact to the plan.  This helps improve decision making during risk escalation, and ensures the best outcomes possible.

There are multiple types of risks inherent strategic planning that can cause a high rate of failure:

  • Strategies which are beyond current organizational experience, capability, or resources
  • Initiatives which fail to have proper stakeholder support, underestimated complexity, and unidentified impact on operational effectiveness 
  • Impact of new strategies on existing business such as loss of good will/customer satisfaction, cannibalization/loss of existing business, and negative legal/regulatory impact
  • External forces such as emerging competition, new regulation, and unexpected opportunities (all of which require changing priorities)

Being able to identify and evaluate overall risk within the strategic plan allows the organization to develop more effective strategy management plans that concurrently managing the impact of risk on strategic outcomes.  Management plans must consider the on-going organizational risk and the impact those risks might have on the organizations ability to achieve its strategic objectives. Risk analysis and management processes must be in place as the organization develops its strategic plan, initially to determine the quality of a given plan and its probability of success. The analysis should provide a sensitivity to the impact of risk on the plan. 

Plan quality is driven by how well it supports its objectives and its level of risk

The quality of a given plan, can be evaluated upon how well its goals and objectives are supported by the strategies and initiatives that have been identified. When a given objective is supported by initiatives with high risk, it is less likely to be achieved.  Therefore, the objective targets should be analyzed and adjusted to represent more realistic expectations based upon the identified risk.  Another option, to compensate for the potential impact of high-risk initiatives could be adding lower risk initiatives that support achievement of the original objective targets.  Often, risk mitigation will lead to the identification of additional initiatives to counter the impact of risk.  In particular, when addressing risks that a given strategy might have on the organization. 

As new risks are identified, plan health should be dynamically updated

During the execution phase of the strategic planning lifecycle, when a new risk is identified, the plan is then reassessed to evaluate the overall impact. Where necessary, mitigation plans should be escalated to leadership, so they can be prioritized appropriately.  Maintaining a more dynamic approach to strategic planning ensures better decision making and improved strategic outcomes when events jeopardize the organizations strategies.

The teams charged with the implementation and execution of strategic initiatives must factor in risk to the management approach.  This is done to minimize the impact of risk on their efforts and, more importantly, on the overall strategic plan.  Initiative risk management processes, identify risk, analyze potential impact, employ mitigation strategies, and monitor results.  Key mitigation strategies are escalated when required. And initiative risk is propagated to the strategies and strategic objectives so that the impact of initiative risk becomes risk to the strategy and its objectives.

Risk management improves the quality of decision making

Using a simple and streamlined risk management process will improve the quality of organizational decision making and increase responsiveness to threats.

During assessment of a given strategy, organizations must consider the expertise and capabilities required to successfully implement a given strategy. Based upon those requirements, the organization must decide if it has the required capability and expertise to execute the given strategy.  If it does not, chances of success are limited.  Mitigation strategies to overcome such limitations can put in place, but the risk is often far too great.

And finally, a given strategy can significantly impact ongoing operational success.  Organizations must consider the risk of potential impact to existing business during planning and implement risk management plans to minimize the potential negative outcome.  By assessing the potential impacts of a given strategy, mitigation can begin before the impact of risk is realized.  Mitigation strategies, including the identification of additional initiatives to overcome identified impacts, can eliminate the risk before it becomes an issue.

Risk management improves strategic outcomes by focusing on mitigating points of failure

By understanding risk and integrating simplified assessment and management processes into the strategic planning lifecycle, organizations have a better chance of meeting their strategic goals and objectives.  Integrating risk management across the strategic planning lifecycle, it is possible to improve the quality of a given plan and its achievability.

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