The purpose of this article is to propose a process which ensures boards make risk pay off by identifying and selecting opportunities which more than compensate for the risks assumed. Organizations are increasingly under threat from factors such as globalization, regulations, and technology. Given this, the biggest challenge boards' face is to competently manage these opportunities and risks. Although boards can benefit from fully integrating risk management into the strategy formulation process, survey evidence shows most have not done so.
This article draws from the confluence of the risk management, strategy formulation and board governance streams to illustrate how boards can enhance performance by integrating strategy formulation and risk management into a single process.
Given that many boards formulate strategy and manage risk separately, organizations can gain a competitive advantage by managing them in an integrative fashion. Boards that integrate strategy formulation and risk management should achieve higher stakeholder returns and be more adaptive than rivals.
Boards need to adopt strategies for their organizations which create the desired amount of stakeholder value within acceptable risk levels. Boards can only ensure this occurs if the opportunities and risks are discussed as part of the same process. Only with full knowledge of the opportunities and risks, as well as the risk management responses, can boards ensure management are recommending optimal strategies for their organizations.
This article outlines a process which ensures boards are adequately addressing risk when selecting strategies for their organizations.
