8APRIL JUNE 2024CFO TECH OUTLOOKIN MY OPINIONStrategic risk management is generally defined as managing a business and keeping it sustainable in the long run by avoiding loss of competitive advantage and ensuring sufficient capacity to implement the strategy.It is important to invest in strategic risk management because of the huge impact of potential disruptive events, which could threaten the stability of the company's business model. History remembers many examples of companies in the financial and IT industries that failed due to strategic risk, like Lehman Brothers, which had an inadequate growth strategy, and Nokia, which had a lagging technology. The technological progress made photographic tape to be replaced by digital pictures, video libraries by pay-per-view (Netflix, Amazon Prime), and music cassettes and CDs by music content platforms (Spotify, YouTube). Let's assume you are producing devices. If you do not implement the latest technologies as soon as possible, you will start losing clients, incomes, market share, and finally, your business. Strategic threats and risks are related to:· External environment (like unexpected changes in the market environment affecting participants)· Competitors actions lead to a serious negative impact on the company's business· Inadequate planning of strategic priorities and goals.· Lack of capabilities or resources to implement the company strategyQualitative and quantitative assessment tools are used for measuring and managing strategic risk. The introduction of early quantitative warning indicators is helpful, but prominent strategic risks caused by disruptive events for business innovation and new technologies cannot be tracked by traditional risk indicators; they have to be anticipated. The disruptive patterns of environmental changes could be tracked using scanning and scenario planning simulations based on cognitive analytics and machine learning. Scenario analysis aims to produce alternative outcomes with effects on market share, income, assets, capital, etc. The assumptions underlying the strategy can be tested in terms of their feasibility given the human, operational, and financial resources and alternative economic forecasts.Qualitative instruments for identifying and assessing strategic risks include news, workshops, working sessions, Navigating the Future: The Imperative Role of Strategic Risk Management in Sustaining Business ExcellenceBy Nikolay Stoichkov, Head of Strategic Risk Management Unit, First Investment Bank Nikolay Stoichkov
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