At this time of the year, most business owners and managers are updating plans for 2014. These plans might include budgeting for financial and employee growth, plans for launching a new product, or opening a new office to serve customers. All of these business initiatives contain an aspect of risk in order to reach the desired outcome. In the business world, risk is most simply defined as the possible deviation from your planned business achievement and objectives or as I like to say: 'What could go wrong?"

Taking a proactive stance on identifying and assessing your strategic risks, leads to tactics that are more effective to minimize the risk of failure, while maximizing the potential for success. Through our Crowe Horwath Global Risk Consulting practice, we can help you look at how risk is managed throughout your organization so you can be empowered to react timely, decisively, and profitably within today's complex global marketplace. Specifically, any company can adopt a practical, five-step approach to enterprise risk management (ERM):

  1. Organize the effort – involve your team and appoint an ERM lead. ERM is more than just insuring against loss and perils;
  2. Establish a framework – establish a common risk language across your business – strategic, operational, financial, information technology, governance; and compliance.
  3. Conduct risk assessments and risk analyses – identify, assess, and understand your "What could go wrong?" events;
  4. Inventory risk responses – document your plans of action (accept the risk, transfer the risk, avoid the risk); and
  5. Implement risk-response monitoring – assign each major risk an owner and key metrics to report on whether the risk is stable, increasing or decreasing.

A strong commitment to a risk management program enables the board and management to evaluate their strategy to determine if it's realistic, and then determine whether the strategy needs revisions or modifications. So, where can you begin in your own business? Let us start with your strategic risk. Strategic risks are the "What could go wrong?" events such as:

  • New product developments – are there competitive new innovations, R&D investments to make, new product lines to explore?
  • New sources of finance – are there ways to manage to the optimal debt to equity ratio or a lower cost of capital?
  • Acquisitions or dispositions – organic growth or acquire? Divest low growth business?
  • Outsourcing or maintaining processes and competencies in-house – opportunity costs?
  • Corporate governance – is our business organized and governed effectively and according to best practices?
  • Leadership – do we have the talent development and succession planning processes that we need?
  • Alignment to the company's objectives – is each division, office, or plant on the same page?
  • Planning processes – do our business leaders get the information they need to make good decisions?

Do some of these apply to you? What do you do next? Identify and assess your risk. Risk identification requires knowledge of the organization, the market in which it operates, the legal, social, political and cultural environment in which it exists, as well as an understanding of strategic and operation objectives. Which risks or events can impact the achievement of your organizational objectives? What is the potential impact of the risk and how likely is it to occur? Approaches to identifying and assessing your risks include:

  • Surveys of management and employees
  • Risk identification and assessment workshops
  • Interviews with key management and board members
  • Scenario analysis
  • Judgements based on experience
  • Expert opinions

Factors to consider when selecting an approach include:

  • Time horizon
  • Complexity of issues
  • Company size and number of participants
  • Corporate culture
  • Timetable
  • Geography
  • Language

By identifying, assessing and monitoring your specific strategic risks, you can approach 2014 not only with a clear strategy, but with an understanding of how to adjust your business plans if outcomes develop differently than originally envisioned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.