Strategic risk management

What is strategic risk management?

Strategic risk management is managing the risks a company takes on deliberately to pursue its strategy, separate from preventable risks. Robert Kaplan and Anette Mikes drew the distinction in Harvard Business Review in 2012. Some risks start inside the company, such as staff breaking rules, and the aim is to stop them. Others come with the strategy, such as betting on a new market, and leaders decide how much of that risk the business can carry. A third kind, such as a recession or a storm, sits outside the company's control.

Why it matters to a revenue leader

Every growth plan carries strategy risk, such as concentration in a few national accounts or a new service line that depends on scarce technicians. A revenue leader who names those risks up front, with a view of how much the business can absorb, gives the board a forecast it can trust. In a PE hold, a surprise late in the hold period can cost more than a missed quarter, because it lands when buyers are looking.

A mechanical services company with 20 sellers plans to grow by winning two national accounts worth $8M a year. The revenue leader shows the board that if both close, the top three customers will hold 38 percent of revenue. The board accepts the risk and agrees to limit the branch capacity national work can take until more regional accounts are in place.