Compliance, Political

and Strategic Risk

Presented to:
Cecile F. Jose, PhD
Professional Lecturer
 Risk management is the process of 
identifying, assessing and controlling threats to an
organization's capital and earnings. These threats,
or risks, could stem from a wide variety of
sources, including financial uncertainty, legal
liabilities, strategic management errors, accidents
and natural disasters ( WhatIs.com – Margaret
Rouse ).

Risk Management
 Other important benefits of risk management include:
-Creates a safe and secure work environment for all staff and
customers.
-Increases the stability of business operations while also
decreasing legal liability.
-Provides protection from events that are detrimental to both
the company and the environment.
-Protects all involved people and assets from potential harm.
-Helps establish the organization's insurance needs in order to
save on unnecessary premiums.

Risk Management
 Compliance risk is exposure to legal
penalties, financial forfeiture and material
loss an organization faces when it fails to
act in accordance with industry laws and
regulations, internal policies or prescribed
best practices (Whatls.com). 

Compliance Risk
 Compliance Risk is also sometimes
known as integrity risk. Many compliance
regulations are enacted to ensure that
organizations operate fairly and ethically.
For the reason, compliance risk is also
known as integrity risk.

Compliance Risk
 Compliance  risk management is part of the collective
governance, risk management and compliance (GRC) discipline.
The three fields frequently overlap in the areas of  incident
management, internal auditing, operational risk assessment, and
compliance with regulations such as the Sarbanes – Oxley A.
Penalties for compliance violations include payments for
damages, fines and voided contracts, which can lead to the
organization's loss of reputation and business opportunities, as
well as the devaluation of its franchises ( https://search
compliance.techtarget.com/definition/ compliance-risk-
Margaret Rouse).

Compliance Risk
 Six Types of Compliance Risk By John Spacey, August 27, 2015
updated on November 05, 2016
Compliance risk is the potential losses and legal penalties due to
failure to comply with laws or regulations. In many cases, businesses
that fully intend to comply with the law still have compliance risks
due to the possibility of management failures. The following are a
few examples of compliance risks (https://simplicable. Com /new /
compliance-risk).
 
1. Environmental Risk 2. Workplace Health and Safety
3. Corrupt Practices 4. Social Responsibility
5. Quality 6. Process Risk

Compliance Risk
 Six ways in which you can handle compliance
in a different way:

1. Adopt a unique compliance strategy 

Compliance Risk
Compliance Should be a Culture
For compliance management to be success,
merely following the right strategies, adopting
the right tools, and doing the same old thing
won't be enough. You must create a culture of
compliance across the organization. And,
ultimately, adherence to compliance shouldn't
have to be imposed on employees, but rather,
should come from within.

Compliance Risk
Political Risk
Political risk is the risk an investment's returns
could suffer as a result of political changes or instability in
a country. Instability affecting investment returns could
stem from a change in government, legislative bodies,
other foreign policymakers or military control. Political
risk is also known as "geopolitical risk," and becomes more
of a factor as the time horizon of investment gets longer.
They are considered a type of jurisdiction risk (https
://www.investopedia.com/terms /p/politicalrisk.asp By 
JAMES CHEN).

Political Risk
Political Risk
There are both macro- and micro-level political risks.
Macro-level political risks have similar impacts across all
foreign actors in a given location. While these are included
in country risk analysis, it would be incorrect to equate
macro-level political risk analysis with country risk as
country risk only looks at national-level risks and also
includes financial and economic risks. Micro-level risks
focus on sector, firm, or project specific risk.

Political Risk
Six types of political Risk
Political Risk is the probability that political decisions,
events or conditions will result in losses. Politics affect
everything from taxes to interest rates and political events
can dramatically impact the price of assets or cost of doing
business. The following are few types of political risk (
https://simplicable.com/new/political-risk; posted by John
Spacey, August 25, 2015 updated on February 12, 2017)
1. Trade Barriers 2. Taxes
3. Legislation 4. Administration
5. Political Instability 6. Economics

Political Risk
Unforeseen political events can lead to:
- Confiscation, expropriation or nationalization of assets
- Export/import embargoes or cancellation of export/import licenses
- Physical damage to assets from political violence
- Termination of or default on contracts
- Non-payment or moratorium due to exchange transfer and currency
inconvertibility
- Non-delivery/shipment of goods
- Calling of on-demand bid or contract bonds and guarantees for unfair or
political reasons
- Forced abandonment or divestiture
- Non-payment by government and/or government owned entities of
trade-related debt to financial institutions.

Political Risk
The Impact on Firm Performance
The risk manager's ultimate challenge when assessing
political risk is to determine whether a political event
poses a threat to a firm's financial performance. A mass
demonstration in a stable developed country may be less
significant to a firm's performance than one occurring in an
unstable developing country. Similarly, a worker strike for
higher wages is very different from a nationwide strike to
overthrow an incumbent government.

Political Risk
What is strategic risk?
It may be easiest to describe strategic risk by
what it is often confused with—operational risk.
Good operations mean doing things right, while
good strategy means doing the right things.
Strategic risk arises when a company fails to
anticipate the market’s needs in time to meet
them.

Strategic Risk
 Strategic risk is the risk that failed business
decisions, or lack thereof, may pose to a
company. Strategic risk is often a major factor in
determining a company's worth, particularly
observable if the company experiences a sharp
decline in a short period of time. Due to this and
its influence on compliance risk, it is a leading
factor in modern risk
management( en.wikipedia.org/wiki/Strategic_ris
k)
Strategic Risk
Importance of Strategic Risk (www.risk.net/strategic-
risk-management/5527346/what-is.).
  The importance of strategic risk has risen along with
both "regulatory and stakeholder expectations". In 2005,
the Corporate Executive Board-now under Gartner—
published a study on Fortune 1000 companies between the
years 1998 and 2002, and the types of risks that affected
them the most. These companies comprised the top 20%
who faced the most drastic "market value declines", and
the number one risk they had in common was strategic risk
(the second and third being operational and financial risk,
respectively).
Strategic Risk
Mitigating Strategic Risk
  Since strategic risk comes from the business strategy of
a company, it is important for top management and the
board of directors to be involved in creating a plan to
reduce risk in this area. Management should use their
knowledge of the company and its industry to formulate a
strategy, and work in collaboration with the board of
directors to identify and assess possible risks associated
with that strategy. It is then the role of the board to decide
upon an acceptable level of risk and whether the potential
gains from the strategy proposed are worth the risk.
Strategic Risk
Three approaches to managing strategic risk include:
1. Using independent experts
Experts from outside of the firm can be used to periodically assess
the risk level of projects
2. Facilitators
A central group manages risk across different departments of a
company by collecting information from operating managers and
creating a comprehensive review of the company's risk
3. Embedded experts
In industries such as financial services where the company's level of
risk is highly variable and dependent upon the actions of traders
and investment managers, risk experts can work alongside these
employees to continuously monitor and assess their daily actions 

Strategic Risk
 Strategic risk management framework - By
following a strategic management process, a
company can ensure that risk is addressed at every
step of:
1.Strategic risk profile analysis
2.Formulation of strategic plan
3.Implementation

Strategic Risk
What is strategic risk management?
Strategic risk management is the process of identifying,
quantifying, and mitigating any risk that affects or is inherent in a
company’s business strategy, strategic objectives, and strategy
execution. These risks may include:
- Shifts in consumer demand and preferences
- Legal and regulatory change
- Competitive pressure
- Merger integration
- Technological changes
- Senior management turnover
- Stakeholder pressure

Strategic Risk
 Managing strategic risk involves five steps which must be
integrated within the strategic planning and execution process in
order to be effective:
1.Define business strategy and objectives. There are several
frameworks that companies commonly use to plan out strategy, from
simple SWOT analysis to the more nuanced and holistic Balanced
Scorecard. The one thing that these frameworks have in common,
however, is their failure to address risk. It is crucial, then, that
companies take additional steps to integrate risk at the planning
stage.
2.Establish key performance indicators (KPIs) to measure
results. The best KPIs offer hints as to the levers the company can
pull to improve them. Thus, overall sales makes a poor KPI, while
sales per customer lets the company drill down for answers.

Strategic Risk
3.Identify risks that can drive variability in
performance. These are the unknowns, such as future customer
demand, that will determine results.
4. Establish key risk indicators (KRIs) tolerance levels for
critical risks. Whereas KPIs measure historical performance,
KRIs are forward-looking leading indicators intended to
anticipate potential roadblocks. Tolerance levels serve as
triggers for action.
5.Provide integrated reporting and monitoring. Finally,
companies must monitor results and KRIs on a continuous basis
in order to mitigate risks or grasp unexpected opportunities as
they arise.

Strategic Risk
 22 Strategic Risks (posted by Anna Mar, February 02, 2013)
https://business.simplicable.com/business/new/22-strategic-ri
sks
The words "strategic risk" strike fear into the hearts of investors
and executive leaders everywhere. Strategic risk invokes images
of imploding companies, scandal and loss. The path to managing
the business menace of strategic risk begins with risk
identification. The following risk types are a good starting point.
1. Corporate Governance Risk 2. Strategy Execution Risk
3. Strategy Forecast Risk 4. Competitive Risk
5. Innovation Risk 6. Technology Risk

Strategic Risk
22 Strategic Risks (posted by Anna Mar, February 02, 2013)
https://business.simplicable.com/business/new/22-strategic-ri
sks
7. Intellectual Property Risk 8. Merger & Acquisition Risk
9. Change Management Risk 10. Program & Project Risk
11. Marketing & Sales Risks 12. Operational Risks
13. Talent Management Risk 14. Security Risk
15. Liability Risk 16. Compliance Risk.
17. Sustainability Risk 18. Reputational Risk
19. Financial Risk 20. Systemic Risk
21. Political Risk 22. Force Majeure

Strategic Risk
Risk Management