Strategic Risk Management

CHAPTER 3

SRM at Thirty Thousand Feet: Assumptions, Mental Maps, and Principles

Strategic risk management is a set of principles, processes, teams, and tools that allow firms to manage strategic risks, which are those uncertainties, events, and exposures that create threats to—or opportunities to expand— their core competitive advantages. This chapter takes up the first element of SRM: principles. SRM requires a new management mind-set, or mental map, to link strategy and risk. That mental map builds from four compass points: focus on unknowns, clarify risk capacity and appetite, integrate SRM with other risk functions, and embed SRM in the “strategy complex” of the firm. We begin with a story of a company that employed the wrong mental map