Strategic Risk Assessment-3/6

/ July 27th, 2010/ Posted in How to do Risk Assessment / No Comments »

This is a series on the risk manager’s role in strategic planning. The model for risk context described in posts 1/6 and 2/6 – Strategic Identity – needs to be complemented by research.  In this post I describe Environmental Scan as a preparatory step in strategic risk assessment.

The Black Swan author Nassim Taleb’s lamentation is that we suffer from an illusion that the world is comprehensible. Granted, we can’t know everything – but that admission is no substitute for trying.

Research in pursuit of strategic resilience is often of a general nature: a PEST (Political, Economic, Social and Technology) summary; or a précis of economic trends and forecasts. Generalized research is not really sufficient to inform strategic risk assessment.

Environmental Scan

What is an environmental scan?  It is research oriented towards 1. the internal setting; 2. the task environment; and 3. global conditions.

This means turning attention first to an internal review of the firm – precisely to identify the unique assets and competencies mentioned in the last post, as well as “hidden assets” in the form of intangibles and abstract qualities. Many of these might escape a cursory review, but actually be of value – for example, the past experience of employees, or a unique position in the market or supply chain.

The second area is the “task environment” which is the domain of all the firm’s various interactions and stakeholder relations. The third area is the macro or global scene, but is still specific in the sense that you pay attention to developments in your field, and compare cross-jurisdictional practices.

Environmental Scan Template

Comprehensive environmental scan templates and resources are provided in the online course Creating Value: Risk Manager as Innovator. These templates contain:

1. Environmental Scan practice: The who, what, when, and how of a complete environmental scan research process for the organization, integrated with planning.

2. Internal Scan: Listing of 14 internal elements to review as scan targets, in the categories of Assets: e.g., Hidden, Under-Recognized, Not Counted in Financial Statements; Facilities; Processes; People.

3. Task Environment: Plan to conduct scan of stakeholder and firm interactions (see diagram). Stakeholders identified in 6 general categories. Review of  Obligations, Dependencies, Interactions, Deliverables.

Strategic Risk Assessment - Stakeholder Analysis

4. Macro/Sector Scan. Macro and Sector trends set out in many classes and categories.

Methodology: The environmental scan templates aims to identify and assess opportunities for innovation in 5 levels of improvement, from compliance to changing business practice.

Environmental scan is therefore a targeted effort, first, to take stock of the organization itself, then to investigate the trends, interests and motivations of stakeholders. Finally, it gives you sufficient preparation to be able to enter into the strategic discussion and identify crucial risks – and opportunities – in industry developments, social trends, geo-politics, technological innovation, and market shifts.

With the risk context defined authoritatively through Strategic Identity and informed by environmental scan, the risk manager has an excellent basis on which to lead group sessions. Risk manager as facilitator is the subject of the next post.

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