Strategic risk management can be described as a process of managing, assessing and identifying the risk that exists within an organization. This also involves the strategy that a company employs during taking the swift action after a risk has been realized. Strategic risk management thus involves a range of possible events and the scenarios that will affect the strategy, its execution and the ultimate effect on the on the company’s value. The risk is thus an important concept and it encompasses everything from the reputational risk, supply chain risk, market risk, product innovation risk (Gates, Nicolas and Walker 2012). The most basic component of the strategic risk management of an organization takes into account the tolerable levels of risks and framing that as a guide for the purpose of strategic risk management. strategic risk management is a continual process that embeds in the strategy execution and strategy setting (Pritchard and PMP 2014). Strategic risk management is also called enterprise risk management and it is based on the principles: the main goal of the strategic risk management is to protect the stakeholder and the shareholder value; strategic risk management is a component of enterprise risk management and it is affected by the management, and the board of directors and others; strategic risk management is a continual process that is embedded within the strategy management, strategy execution, and strategy setting. Organizations thus adapt the principles and the definition of the strategic risk management when they try to develop the action plan in order to focus on the strategic risks and the strengthening the enterprise risk management (Lam 2014). This study is based on the role of a strategic risk consultant and the consulting the various risk associated with the functioning of Woolworths, Australia.
Summary- Woolworths group is a big business entity and it is thus exposed to a range of operational, financial, strategic and compliance risks that occur along with the operation of the online and the retail markets. Thus, below are the insights into the various risks of Woolworths:
The Woolworths Group performs an external and internal audit for the purpose of risk assurance and risk management. Communicates with the shareholders and engages with them and takes a process of continuous disclosure and finally, the Woolworths Group provide the assurances by the management through the various reports. This is discussed as follows:
The first step of risk management is to understand the type of risks that an organization is facing. According to hbr.org (2018a), organizations face risks into the three major categories. Also, it is important to note that events of risks can be fatal for a company from the perspective of the company’s strategy and also for the survival of the company itself. Woolworths also faces risk from the 4 chief areas like the strategic risk, financial risk, compliance risk, and operational risk. Risk thus need to be identified and properly assessed for finding the mitigation strategies.
The first category of risks are the preventable risks and these risks are to a large extent preventable and occur within the organization itself. These risks can be avoided, eliminated and can be controlled (Mikes and Kaplan 2015). The various examples that can be presented here are the breakdown in the normal processes of operation, inappropriate and incorrect actions, unethical actions, illegal and unauthorized actions. These examples are also applicable for Woolworths company as this company will also experience similar kinds of the preventable issues. Thus, Woolworth will experience operational issues along with the customer dissatisfaction and gross misconduct from the employees of Woolworths. According to hbr.org (2018b), Companies must have zero tolerance towards the errors and defects in order to minimize any kind of damage done to the image of the company and also in achieving the organizational goals. Thus the companies must have a goal of avoiding these risks since a particular company will gain no benefit from such ill activities. It is, however, important to note that an employee bribing an official and a rogue trader doing the same will yield benefits for the company on a short term but it will have no long-term benefit for the company. This is true for Woolworths as well because, in the long run, the Woolworths will lose the company value. According to Mikes and Kaplan (2015), the preventable risk category can be managed through the active prevention techniques and it will include the guiding the behaviours of the employees, making decisions to achieve desired norms and monitoring the operational processes. Rules-based compliance like the code of conduct, employee policies can be effectively used for the purpose of managing them and identifying the preventable risks (Carroll 2016). Woolworths must also have the code of conduct, employee policies, and the training to effectively train the employees and guide them in following the organizational rules.
The second category of the risks are the strategy risks and this kind of risks help to generate superior benefits in the form of extra revenue and a competitive market advantage (Leonidou et al. 2013). Companies always try to have a competitive advantage over its competitors and for this reason, it will always try to research and develop strategies which might seem to be a risk. However, such risk often gives a competitive advantage over the other companies. Woolworths also can do activities like the selling of the petrol business which might seem to a bad decision in the first instance. But this can prove to be beneficial for Woolworths because after selling the petrol business asset, Woolworths can gain a lot of capital. This will help the company to plan for the general merchandise effectively and efficiently. According to Viscelli, Beasley and Hermanson (2016), the strategic risks are different from the preventable risks and because such a risk is desirable from the perspective of the company. A strategy that will involve a large number of revenue returns or creation of capital, will force a company to take certain decisions and risks to have potential gains. It is important to note that the rules-based control mode cannot be used for the purpose of risk management. Instead, a company requires a strategic risk management strategy for the purpose of risk management and also to reduce the probability of occurrence of a risk (Larson et al. 2014). Even though a company has all the systems in place, this will not prevent a company from undertaking the risky ventures. While it is important to note that companies will definitely try to take the higher risks along with the higher rewards. This will, however, deter the other market competitors to undertake the similar kind of risks because such companies may have a less effective risk management strategy (Baxter et al. 2013). Woolworths also has a strategic risk management strategy that helps the company to undertake calculated risks. Woolworths have the external and the internal auditors that have the separate functions. External auditors have the responsibility to audit the external factors that carry potential risks like the financial and the compliance risks. The internal auditors also focus on advising the Board of managers and board of directors regarding the risk reduction and risk management. The internal auditors also work to minimize the risk arising from the company operation and the strategic risks.
The third category of the risks is called the external risks, which arises outside the company and cannot be controlled or managed (Soin and Collier 2013). The sources of these kinds of risks are the issues arising from the macroeconomic shifts, political disasters. Companies thus cannot control such a risk, thus emphasis is put to effectively identify and mitigate the impacts of the risks (Thamhain 2013). Woolworths also have external audit team that plays a major role in the identification of the risks arising externally. The financial risk that Woolworths gets affected from is the changes in the foreign currency exchange rates, liquidity and the interest rate risk. Such risks can effectively impact the Woolworths Group.
The various risk from which Woolworths can get affected is the operational risk, financial risk, strategic risk and the compliance risk. There are generic risks that have the potential of affecting the performance of Woolworths and this, in general, applies to the Australian households and the business. The generic risks associated with the Australian households are the emerging risks, climate change risks, unsuitable changes in the macroeconomic environment. The following are the different types of the risks and the respective mitigation strategies:
Recommendation on the mitigation of the strategic risks-
Recommendation on the mitigation of the financial risks-
Recommendation on the mitigation of the Operational risks-
Recommendation on the mitigation of the compliance risks-
Conclusion
From the above discussion, it can be concluded that the strategic risk management is a process of that emphasizes on managing, assessing and identifying the risk that exists within an organization. The risk is an important concept and it encompasses the reputational risk, supply chain risk, market risk, product innovation risk. The most basic component of strategic risk management of an organization is to take into account the tolerable levels of risks and framing that as a guide for the purpose of strategic risk management. Woolworths group is a big business entity and it is thus exposed to a range of risks like the operational risk, financial risk, strategic risk and compliance risks that occur along with the operation of the online and the retail markets. The Woolworths Group performs an external and internal audit for the purpose of risk assurance and risk management. The company communicates with the shareholders and engages with them, takes a process of continuous disclosure and also the Woolworths Group provide assurances by the management through the various reports.
Reference
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Gates, Stephen, Jean-Louis Nicolas, and Paul L. Walker. “Enterprise risk management: A process for enhanced management and improved performance.” Management accounting quarterly 13, no. 3 (2012): 28-38.
hbr.org. “Managing Risks: A New Framework”. Harvard Business Review. https://hbr.org/2012/06/managing-risks-a-new-framework, 2018a
hbr.org. “The Six Mistakes Executives Make In Risk Management”. Harvard Business Review. https://hbr.org/2009/10/the-six-mistakes-executives-make-in-risk-management, 2018b
Lam, James. Enterprise risk management: from incentives to controls. John Wiley & Sons, 2014.
Larson, Erik W., Clifford F. Gray, Ursula Danlin, Beverly Honig, and David Bacarini. Project management: The managerial process. Vol. 6. Grandview Heights, OH: McGraw-Hill Education, 2014.
Leonidou, Leonidas C., Constantinos N. Leonidou, Thomas A. Fotiadis, and Athina Zeriti. “Resources and capabilities as drivers of hotel environmental marketing strategy: Implications for competitive advantage and performance.” Tourism Management 35 (2013): 94-110.
Mikes, Anette, and Robert S. Kaplan. “When one size doesn’t fit all: Evolving directions in the research and practice of enterprise risk management.” Journal of Applied Corporate Finance 27, no. 1 (2015): 37-40.
Mikes, Anette, and Robert S. Kaplan. “When one size doesn’t fit all: Evolving directions in the research and practice of enterprise risk management.” Journal of Applied Corporate Finance 27, no. 1 (2015): 37-40.
Pritchard, Carl L., and PMI-RMP PMP. Risk management: concepts and guidance. Auerbach Publications, 2014.
Soin, Kim, and Paul Collier. “Risk and risk management in management accounting and control.” (2013): 82-87.
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