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Risk, reputation and strategy - Coggle Diagram
Risk, reputation and strategy
Risk management
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If there is only one outcome, then the future is predetermined and therefore there is no risk
As soon as there are two or more possible outcomes from a given situation, we introduce an unknown future
The word risk refers to a range of understandable and quantifiable outcomes, whereas the word uncertainty suggests that although we can perceive a variety of outcomes, they are not quantifiable
Risk appetite
A risk averse person (or group of people) looks for certainty outcome and is therefore prepared to sacrifice opportunities that might exist for change
Risk aversion can often lead to an intolerance of challenge and therefore an overreaction to any threat to the status quo
A risk-seeking person (or group of people) accepts that life is full of options and uncertainty and such a person has confidence in using their abilities to counter whatever they may face. Threats seen by the risk averse person are very often not even considered as threats by the risk seeking person
Risk seeking can often lead to a dangerous dismissal of the realities that confront a person or orgaisation. Imagination is often preferred to facts; strategic breadth will be wide
Risk capacity is the maximum level of risk that can be taken and often that is required to be taken to achieve the intended strategic goals but also might describe the difference between actual risk being taken and the higher or lower levels of tolerance
Risk tolerance is required in the real world by both risk averts and risk seekers. It emerges from a different perspective to risk appetite and is best illustrated in the type of bubble chart used by many organisations to consider their risk profile
Acceptable levels of tolerance are measured from the interaction of relative impact and relative likelihood and in most organisations there will be natural clusters of acceptability together with aspects that would be unacceptable in the case of a high:high result and would not be worth the effort in the case of a low:low result
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Reputation management
Reputation can be defined as the beliefs or opinions that are generally held about someone or something
The reputation of an organisation or person is based around the accurate or inaccurate opinions held and developed by one or more other people
John Kay (1993) suggests that reputation is the result of the creation and management of contracts and relationships within and around the organisation which add value. He suggests that there are three distinctive relational capabilities that allow an organisation to achieve competitive advantage
Architecture
The network of relational contracts, both internal and external
Reputation
The Assurance to stakeholders of quality through the interrelationship of experience, signalling and promotion
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An important aspect of the strategic governance responsibility is to establish a means for directors to become aware of potential risks affecting the reputation of the organisation. Such risks might fall within one or more of the following categories
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Natural
An internal failure within the organisation which the directors have failed to consider such as a gap in procedures
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Commercial blindness
For example, the acceptance of a customer of higher than usual risk to facilitate a higher fee