What defines strategic risk?

Strategic risk is defined as the potential for losses or adverse outcomes that can hinder an organization from achieving its long-term objectives and goals. This type of risk arises from the fundamental decisions that management makes regarding the organization’s direction, including market selection, product development, and competitive positioning. A strategic risk can stem from factors such as changes in industry dynamics, regulatory shifts, market trends, and competition.

In contrast, risks related to financial loss generally pertain to short-term gains and losses or issues with cash flow and funding. Risks associated with operational processes focus primarily on the day-to-day operations of a business and may involve efficiency, technology failures, or supply chain disruptions. Lastly, risks that can be easily mitigated do not encompass the complexity and depth of strategic risk, which often requires comprehensive analysis and alignment with the organization's mission and vision. Thus, the emphasis on long-term goals clearly identifies the nature of strategic risk.