Strategic Risk Assessment

Patrick McConnell

This chapter considers the very difficult question of how to assess strategic risks. The subject is difficult not only because there is great uncertainty, for example about external economic factors, but there is also enormous “ambiguity” about the options available to a board. Any description of a desired strategic position and its future business model is in some sense hypothetical, since it is describing something that does not exist (yet) and, in fact, may never exist (except on a “clean sheet” of paper). Ideally, one would be able to build a mathematical model of a particular strategic option, collect data and plug it into the model, to produce a result that can be compared rationally to the results (from the same model) for other options, making choices between strategic options relatively easy. But that is a pipe dream.

The assessment of strategic risks is, and will likely remain, a messy process that must combine qualitative with quantitative assessments. Both types of assessments are needed but both are difficult to implement and prone to error, which argues strongly for a robust process that can be reviewed and audited. This chapter describes a model for such a process