"In my view, an effective overall corporate strategy combines a set of activities a firm plans to undertake with an adequate assessment of the risks included in those activities. Unfortunately, many firms have forgotten the second part of that definition. In other words, there can be no real strategic management in financial services without risk management, hence my use of the term "strategic risk management." Risk management needs to be interwoven into all aspects of the firm's business and should be part of the calculus for all decision-making. Strategic decisions about what activities to undertake should not be made unless senior management understands the risks involved; assessing potential returns without fully assessing the corresponding risks to the organization is incomplete, and potentially hazardous, strategic analysis."
While many institutions may have thought they were considering risks when setting strategy, most were blinded by the potential profits without a healthy consideration of the risks. As Governor Kroszner reiterated in his remarks,
"...the ongoing fundamental transformation in financial services offers great potential opportunities for those institutions able to integrate strategy and risk management successfully, and I will argue that survival will hinge upon such an integration...."
Click here to read Governor Kroszner's full speech.
Kroszner's suggestions are consistent with the way Dr. Johnathan Mun teaches Real Options and Risk Management. Real Options represent the strategic choices that leaders can make under conditions of uncertainty and risk; and risk management is a subset of actions to mitigate the downside and exploit the upside of risk.
ReplyDeleteAre you familiar with his work / software (http://www.realoptionsvaluation.com)