Strategic Planning and Enterprise Risk Management

Definition: Strategic management is the coordination of interrelated functional areas to achieve an organization’s established purpose and long-term goals.
Vision Statement: An aspirational description of long-term accomplishments.
Mission Statement: A broad expression of an entity’s goals used to develop policies and allocate resources.
Process Stages:
- Strategy Formation: Creating the plan through internal and external analysis.
- Strategy Implementation: Execution of the plan, often considered more difficult and time-consuming than formation.
- Strategy Evaluation: Monitoring results to determine if the plan is working.

SWOT Analysis: Evaluates Internal Strengths and Weaknesses alongside External Opportunities and Threats.
PESTLE Analysis: An acronym for assessing the external environment across six categories: Political, Economic, Sociological, Technological, Legal, and Environmental.
Five Forces Model: Evaluates external risks and market influences affecting profitability:
- Level of rivalry among competitors.
- Threat of new competitors.
- Bargaining power of suppliers.
- Bargaining power of customers.
- Threat of substitute products or services.

Organizational Levels:
- Corporate Strategy: High-level decisions for diversified organizations regarding global strategy and acquisitions.
- Business Strategy: Focused on a Strategic Business Unit ( $SBU$ ) to remain competitive.
- Functional Strategy: Carried out by specific departments (e.g., Marketing, $HR$ ).
- Operational Strategy: Narrowly defined day-to-day workflow processes.
Development Stage Models:
- Growth: Includes market penetration, vertical integration (input/output control), and diversification.
- Stability: Maintaining current position, often when markets are unstable.
- Retrenchment: Significant expense reduction via turnaround strategies, divestiture (selling units), bankruptcy, or liquidation.

Cost Leadership: Achieving competitive advantage by being the low-cost producer in a market.
Differentiation: Developing unique products or services for which customers pay a premium.
Focus Strategy: Applying cost leadership or differentiation within a narrow market segment.
Value Chain Model: Describes primary and secondary activities that add value to a product:
- Primary Links: Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service.
- Secondary Links: Infrastructure, Human Resources management, Technology development, and Procurement.

Relationship to $ERM$ : Enterprise Risk Management ( $ERM$ ) identifies broad risks across all functions. $SRM$ is a narrower discipline integrated into the executive function to handle risks affecting key strategies.
Standard & Poor’s (S&P): Considers $ERM$ and $SRM$ processes when determining credit ratings for organizations.
$SRM$ Components:
- Strategy Formation: Integrating risk recognition into decision-making and determining risk appetite.
- Strategy Implementation: Allocation of capital and developing risk-based implementation plans.
Modeling Tools:
- Monte Carlo Simulations: Computerized statistical models for uncertainty.
- Scenario Analysis: Brainstorming the worst conceivable events and consequences.
- Strategy Maps: Visual diagrams showing plans to meet strategic objectives.

Risk Appetite: The qualitative and quantitative amount of risk an organization chooses to take to produce value.
- Internal Factors: Strategic objectives, risk attitude, perception of risk, and capital strength.
- External Factors: Political/legal environment, stakeholder expectations, and economic forces.
Risk Tolerance: The quantitative amount of risk an organization is willing to accept, often stated in high-end or low-end thresholds.
Control Processes:
- Strategic Level: Focuses on deciding which risks are worth taking for competitive advantage.
- Operational Level: Focuses on controlling risk to minimize negative effects.