What is Strategic Risk?

Patrick McConnell

This chapter provides an introduction to the concepts of strategic risk and strategic risk management (SRM). First, we look at some definitions of strategic risk by regulators and large financial institutions before discussing why such risks arise. Some major types of risk are then described, in particular strategic positioning and strategic execution risks. Finally, the concept of strategic risk appetite (SRA) is introduced.

WHAT IS STRATEGIC RISK?

As with strategy, there is no generally agreed definition of strategic risk or SRM. MacLennan (2010) points out:

It is relatively recently that strategic risk management has emerged as a distinct concern. Recognition that isolated risk management in specific areas is inadequate and that many risks are “strategic” in their nature and impact has led to the emergence of the field.

Table 2.A.1 in Appendix 2.1 provides some definitions of these two concepts from the strategy literature and business. There are common themes in these definitions in that strategic risks are those risks that:

• • jeopardise achievement of strategic objectives;
• • are created by, and inherent in, a firm’s choice of strategy and the