Strategic Management
INTRODUCTION TO STRATEGIC MANAGEMENT
WHAT IS RISK?
Oxford English Dictionary definition of risk
is as follows: ‘a chance or possibility of
danger, loss, injury or other adverse
consequences’, and the definition of at risk is
‘exposed to danger’
ORGANIZATION AND DEFINITION OF
RISK
ISO Guide 73, ISO 31000 – Effect of
Uncertainty on objectives. Note that an effect
may be positive, negative, or a deviation from
the expected. Also, risk is often described by
an event, a change in circumstances or a
consequence.
Institute of Risk Management (IRM) – Risk is
the combination of the probability of an event
and its consequence. Consequences can range
from positive to negative.
Orange Book from HM Treasury –
Uncertainty of outcome, within a range of
exposure, arising from a combination of the
impact and the probability of potential events.
Institute of Internal Auditors – The
uncertainty of an event occurring that could
have an impact on the achievement of the
objectives. Risk is measured
in terms of consequences and likelihood.
RISK is an event with the ability to impact (inhibit,
enhance, or cause doubt about) the effectiveness
and efficiency of the core processes of an
organization.
So, to understand risk, you first need a plan or
objectives:
Risks can affect the World.
They can affect a country.
They can affect an organization.
They can affect a department.
They can affect a team.
They can affect a person.
Certainty – were goals and clear and certain
Risky – where goals are clear, risk events are
known analyzed
Uncertainty – where goals are clear and risk events
are can’t be analyzed
Ambiguity – where goals themselves are unclear
LESSON:
Risks can occur anywhere, anytime
RISK DESCRIPTIONS
Name or title of risk
Statement of risk, including scope of risk and
details of possible events and dependencies.
Nature of risk, including details of the risk
classification and timescale of potential
impact
Stakeholders affected by the risk, both
internal and external
Risk attitude, appetite, tolerance or limit for
the risk
Likelihood and magnitude of event and
consequences at current/residual level
Control standard required or target level of
risk
Incident and loss experience
Existing control mechanisms and activities
Responsibility for developing risk strategy
and policy
Potential for risk improvement and level of
confidence in existing controls
Risk improvement recommendations and
deadlines for implementation
Responsibility for implementing
improvements
 Responsibility for auditing risk compliance these events and contain the cost of the
events.

Compliance – will be enhanced because the

risks associated with failure to achieve
4 AREAS OF IMPROVEMENT OR
compliance with statutory and customer
CORE PROCESSES OF RISK IN obligations will be recognized.
THE ORGANIZATION
Strategy – because the risks associated with
different strategic options will be fully
analyzed and better strategic decisions will be
reached.

Tactics – because consideration will have

been given to selection of the tactics and the
risks involved in the alternatives that may be
available.

Operations – because events that can cause

disruption will be identified in advance and
actions taken to reduce the likelihood of these
events occurring, limit the damage caused by

ATTACHMENT OF RISK
 RISK AND REWARD
RISK ATTITUDE
Can be defined as a chosen state of mind
concerning those uncertainties that could have a
positive or negative effect on objectives. Risk
Attitudes are generally implemented
subconsciously and without mindful validation.
FOUR TYPES OF RISK ATTITUDES
Risk-averse - refers to the person feeling
uncomfortable with uncertainty, having low
tolerance for ambiguity and seeking safety
when facing risk. People with risk-averse
attitude tend to over-react to negative risks
and under-react to positive risks.
Risk-tolerance - refers to the person being
sensibly comfortable with most uncertainty,
accepting the fact that it exists in life and
projects. People with a risk-tolerant attitude
tend to accept uncertainty without letting it
have a major impact on their behavior.
Risk-neutral - refers to the person not being
risk-averse or risk-seeking but rather seeking
plans that have high future pay-offs. People
with risk-neutral attitude tend to focus on the
longer term and take actions that lead to
major benefits.
Risk-seeking - refers to the person being
adaptable to risks and not afraid of taking
action. People with a risk seeking attitude
tend to enjoy threats and risks and look at
them as challenges.
RISK TRIGGERS
Is an indicator that a risk is about to occur or
has occurred.
Are situations or events that directly result in
a risk-taking place.
Also called risk symptoms. They are
indicators or warning signs of an imminent
risk occurring. Various risks can have
different risk triggers.
BOW TIE METHOD
A bow tie method is a visual way of understanding
the impacts of a hazard, the risk it presents, the
consequences and the controls that should be put in
place.
 BOW TIE METHOD

EXAMPLE OF BOW TIE METHOD

 THE NATURE OF STRATEGIC MANAGEMENT
DEFINITION OF STRAMA
Strategic Management – The art and science
of formulating, implementing, and evaluating
cross-functional decisions that enable an
organization to achieve its objectives.
Strategic management is used synonymously
with the term strategic planning in this
course.
Sometimes the term strategic management is
used to refer to strategy formulation,
implementation, and evaluation, with
strategic planning referring only to strategy
formulation.
STRATEGY FORMULATION
Strategy Formulation is the process of using
available knowledge to document the intended
direction of a business and the actionable steps to
reach its goals.
STRATEGY IMPLEMENTATION
Strategy implementation is the process of turning
plans into action to reach a desired outcome.
Essentially, it's the art of getting stuff done. The
success of every organization rest on its capacity to
implement decisions and execute key processes
efficiently, effectively, and consistently.
STRATEGY EVALUATION
Strategy evaluation is the process by which the
management assesses how well a chosen strategy
has been implemented and how successful or
otherwise the strategy is.
 STRATEGIC PLAN
A strategic plan is a company’s game plan.
A strategic plan results from tough
managerial choices among numerous good
alternatives, and it signals commitment to
specific markets, policies, procedures, and
operations.
Requires a firm to establish annual
objectives, devise policies, motivate
employees, and allocate resources so
that formulated strategies can be
executed
Often called the action stage
Strategy Evaluation

STRATEGIC MANAGEMENT Determining which strategies are not

working well
MODEL
Three fundamental activities:
Where are we now?
 Reviewing external and internal
Where do we want to go? factors that are the bases for
current strategies
How are we going to get there?
 Measuring performance
STAGES OF STRATEGIC
MANAGEMENT  Taking corrective actions

Strategy Formulation KEY TERMS IN STRATEGIC

MANAGEMENT
Developing a vision and mission

Identifying an organization’s external

opportunities and threats

Determining internal strengths and

weaknesses

Establishing long-term objectives

Generating alternative strategies

Choosing particular strategies to pursue

STRATEGY FORMULATION DECISIONS

 What new businesses to enter

 What businesses to abandon

 Whether to expand operations or diversify

 Whether to enter international markets

 Whether to merge or form a joint venture

 How to avoid a hostile takeover

Strategy Implementation