Strategic Risk

The risk of loss or damage due to poor decision making pertaining to important future plans. Examples in a personal setting would be decisions to: move to a different city or country, return to school to pursue a degree, or embark on a career change. In a corporate setting, strategic decisions include acquisitions, termination of old, or entry into new, business lines, and investments in research and development at the expense of other options.

Strategic risk may also be referred to as leadership risk, which is broadly the possibility of loss or damage due to incapable leadership or poor decision making by leaders. Leadership risk is arguably the most significant risk faced by society as a whole.

Example:

You decide to quit your job and go back to school to get a higher degree.

Downside Scenario:

By the time you graduate, there is a full blown recession and you are unable to find a job. Instead of getting ahead, you are saddled with student debt.

Upside Scenario:

Upon graduation you are offered a great job at a company that treats you very well. Within a year you are promoted and are making twice as much as you did before returning to school.

Related terms:

Assumption Risk

The risk of making flawed assumptions.

Optimism Bias

The tendency by people to be overly optimistic in their expectations. This is the proverbial “seeing the world through rose-colored lenses.”

Business Risk

The uncertainty in business performance, possibly leading to financial loss. This includes a variety of potential influences, including, among many others, competition, reduction in sales volume or market share, increase in costs, etc.