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  • Julien Haye

Integrated Risk Management: Navigating Operational Efficiency to Strategic Excellence

Building trust and gaining a sit “at the decision-making table” is a challenge many Chief Risk Officers and risk practitioners share. I have seen risk functions ticking all regulatory boxes and having all frameworks in place, while having little impact on their firm’s strategic and operational direction.


This article is based on the approach I use with my clients as part of the Integrated Risk Management framework. Overall, managing risk at both the operational and strategic levels brings tangible benefits to all organisations, while being intrinsically linked. It improves operational efficiency, safety, and compliance at the operational level, while at the strategic level, it ensures strategic alignment, competitive advantage, and stakeholder confidence. Taken together, these benefits contribute to the organisation's overall success and sustainability, while affirming the value risk management brings to the organisation.


Strategic management of risks

Strategic management of risk addresses long-term goals, identifying risks that could hinder or enable the achievement of your firm’s strategic objectives. More specifically,


Strategic Alignment

Managing risk at the strategic level enables organisations to align risk management efforts with their long-term goals and objectives. It ensures that risks that could affect strategic success are identified and addressed proactively, helping organisations to stay on course and achieve desired outcomes.


Competitive Advantage

Strategic risk management helps organisations to identify and respond to emerging risks and market shifts. By understanding and mitigating risks in areas such as competition, technology, and regulatory compliance, organisations can gain a competitive edge and seize opportunities for growth.


Stakeholder Confidence

Effective risk management at the strategic level enhances stakeholder confidence by demonstrating a proactive approach to risk mitigation. It instils trust in investors, customers, and partners, as they see that the organisation is capable of managing risks and protecting its long-term viability.


Operational management of risks

Operational management of risk focuses on day-to-day activities, mitigating risks that directly impact your firm’s operational efficiency and effectiveness


Efficiency and Effectiveness

Managing risk at the operational level helps improve operational efficiency by identifying and addressing risks that can hinder smooth day-to-day activities. It ensures that operational tasks are executed effectively, reducing errors, delays, and disruptions.


Safety and Compliance

Operational risk management focuses on maintaining a safe working environment and complying with relevant regulations and standards. By mitigating operational risks, organisations can safeguard the well-being of their employees and avoid legal and regulatory penalties.


Continuity and Resilience

Effective risk management at the operational level ensures business continuity by minimising the impact of potential disruptions. It helps organisations build resilience and adaptability to unexpected events, enabling them to recover quickly and maintain operational stability.


Contrasting Operational and Strategic Management of Risks

Looking in more details alongside 6 core areas of risk management, there are subtill but clear differences:

Contrasting Operational and Strategic Management of Risks

Scope and Focus

  • Operational Level: This involves identifying and addressing risks that directly impact the efficient and effective execution of operational tasks.

  • Strategic Level: This involves identifying risks that could affect the achievement of strategic objectives and making informed decisions to mitigate those risks.


Time Horizon

  • Operational Level: Risk management at the operational level typically has a shorter time horizon, focusing on immediate risks and their impact on ongoing operations.

  • Strategic Level: Risk management at the strategic level has a longer time horizon, considering potential risks that could emerge over an extended period, such as market shifts, regulatory changes, or disruptive technologies.


Decision-Making Authority

  • Operational Level: Managing risk at the operational level often involves day-to-day decision-making by operational managers and frontline employees who are closest to the risks. They have the authority to implement risk mitigation measures within their operational scope.

  • Strategic Level: Managing risk at the strategic level involves senior management and executives who make high-level decisions regarding the organisation's strategic direction. They have the authority to allocate resources, establish risk appetite, and set risk management policies and frameworks.



Risk Identification, Assessment and Analysis

  • Operational Level: At the operational level, risk identification, assessment and analysis focus on specific operational processes and activities. It involves assessing risks related to workflow, quality control, supply chain, human resources, health and safety, and other operational aspects.

  • Strategic Level: Risk identification, assessment and analysis at the strategic level consider a broader range of factors. It involves analysing risks related to market competition, industry trends, technological advancements, regulatory compliance, financial stability, brand reputation, and other strategic considerations.



Mitigation Strategies

  • Operational Level: Risk mitigation at the operational level often involves implementing controls, procedures, and protocols to prevent or address operational risks. It focuses on ensuring efficient operations, reducing errors, improving productivity, and maintaining a safe working environment.

  • Strategic Level: Risk mitigation at the strategic level involves developing comprehensive strategies and plans to address risks that could impact the organisation's long-term success. It may include diversification strategies, contingency planning, strategic partnerships, investments in research and development, or entering new markets.


Performance Measurement:

  • Operational Level: Performance measurement at the operational level focuses on monitoring and evaluating operational metrics and key performance indicators (KPIs) related to efficiency, quality, productivity, and compliance with operational standards.

  • Strategic Level: Performance measurement at the strategic level involves tracking and assessing key strategic objectives, financial performance, market share, customer satisfaction, brand perception, and other indicators that reflect the organisation's overall success.

 

I believe that being able to effectively articulate how risk management activities answer these two fundamental dimensions is critical to (re)position risk management functions as a strategic enabler and earn a “sit at the table”. Clarity of vision and of purpose act as catalysts to enable that shift and I will cover these aspects in future blog articles.


Ready to take your risk management to the next level? Don’t hesitate to book an exploratory meeting here or reach out via email at julienhaye@aevitium.com


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