How do you align risk with strategy for better performance?

A SWOT analysis should be used to help an entity gain insight into its current and future position in the marketplace or against a stated goal. Organizations or individuals using this analysis can see competitive advantages, positive prospects as well as existing and potential problems. With that information, they can develop business plans or personal or organizational goals to capitalize on positives and address deficiencies.

At all stages of the process, it is very important to ensure the board, business and all risk management functions play an active role in the appetite setting and in analysing the strategic objectives. Brainstorming sessions at various levels is very vital in achieving these. Once a satisfactory alignment of strategic objectives and risk appetite is determined, all stakeholders can go ahead to play their part in pursuing the goals of the organisation. It is also critical to ensure appropriate criteria is put in place to guide in monitoring and reporting on the progress of implementation.

From my experience. To align risk with company strategy, it's crucial to first understand the strategic context of the organization. In the case of our financial services bank venturing into digital transformation, this involves evaluating the market trends, customer demands, and competitive landscape. By assessing the strategic context, the bank can identify potential risks stemming from external factors that might impact its digital initiatives, such as regulatory changes or technological disruptions.

In assessing your risk context, it would be helpful to understand that the weaknesses and threats identified in your SWOT analysis are vulnerable areas that you must strategically prioritize to put in place required measures to avert the eminent risks.

An example of a bank undergoing digital transformation, defining risk appetite and tolerance is essential. This means determining the level of risk the organization is willing to take on in pursuit of its strategic goals. In this context, the bank must strike a balance between innovation and prudence. Clearly outlining risk thresholds helps the bank prioritize opportunities and make informed decisions when introducing innovative products and services to the market.

Risk and return are intrinsically intertwined with each other and risk tolerances and appetites should be clearly defined before moving on to the return part. A lot of investors focusing on higher returns overlook the risk factors end up with a shock later down the road.

I agree, but Integrating risk into strategic execution requires embedding risk management practices into the entire digital transformation journey. As our bank introduces innovative products, it must proactively identify potential risks, assess their impact, and implement mitigation strategies. This involves engaging risk professionals at every stage, from concept development to product launch. By doing so, the bank ensures that risk considerations are an integral part of decision-making and execution.

In my experience to align risk with company strategy, fostering a risk-aware culture is crucial. The bank should encourage open communication about risks and rewards, both at the leadership level and among employees involved in digital transformation projects. Training and development programs can enhance risk management capabilities, empowering employees to identify, assess, and manage risks effectively. A strong risk culture ensures that risk awareness becomes a shared responsibility across the organization.

Leveraging Agile Methodology for Adaptive Risk Management: In the dynamic landscape of digital transformation, traditional risk management may fall short. An additional perspective involves adopting agile methodology for risk management. By applying agile principles, the bank can continuously monitor and adjust risk strategies in response to changing circumstances. This approach allows the bank to swiftly pivot or seize emerging opportunities while maintaining alignment with its strategic objectives. By assessing all these above “risk alignment pillars”and leveraging adaptive risk management, the bank not only minimizes potential pitfalls but also capitalizes on strategic opportunities for growth and success.