Strategic Risk Management Report: Analysis of LEGO Group's Risks

This report focuses on Enterprise Risk Management (ERM), exploring its definition as the explicit management of strategic risks, alongside hazard, commercial, and operational risks. The report delves into key concepts like Monte Carlo Simulations for assessing economic performance volatility, and Systematic Risk and Opportunity Planning (AROP) for organizing business procedures. It highlights the importance of preparing for uncertainty in long-term strategic planning. Examples of strategic risks, such as marketing and competitive risks, are provided, alongside a discussion of strategic risk measurement using Economic Capital and Risk-Adjusted Return on Capital (RAROC). The report outlines a five-step process for managing strategic risk, including defining business strategies, establishing key performance indicators, identifying performance variability risks, establishing key risk indicators, and providing integrated reporting. Finally, an example of implemented strategic risk management is presented, illustrating the application of these concepts in a retail bank setting. The report concludes with references to relevant literature.

Running head: ENTERPRISE RISK MANAGEMENT
ENTERPRISE RISK MANAGEMENT
Name of the Student:
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Author Note:

1ENTERPRISE RISK MANAGEMENT
Enterprise Risk Management, Monte Carlo Simulations, Systematic Risk and
Opportunity Planning, Preparing for Uncertainty these are risk factors of LEGO Group.
Enterprise Risk Management: Enterprise Risk Management defines supplemented of hazard,
commercial, operational risks by explicit management of strategic risks.
Monte Carlo Simulations: Monte Carlo Simulations describes to find out the economic
performance volatility, and the drivers incorporate risk management through the estimating and
reporting procedures.
Systematic Risk and Opportunity Planning (AROP): In AROP business projects organizing
the business procedures through the active risk and opportunity planning before taking the
ultimate results about the procedures and the plans.
Preparing for Uncertainty: In this strategy where the management team tries to assure long-
term strategy of the management such as where management of the organization tries to assure
that long-term strategies are related to upcoming changes that are different from previous plans
(Bromiley et al.,2015).
Examples of Strategic Risks:
Marketing Risk:
When the company not popular in the market, there are always be a market risk of loss.
Competitive Risk:
When an organization forms a conservative strategy, it creates some modifications to its
products. The plan represents a risk so that the competitors are developing their products quickly.

2ENTERPRISE RISK MANAGEMENT
When the competitors launch their product in the market, the company losing its market risk and
shares because of its conservative approach (Bahl, 2013).
Strategic risk measured with these two keys::
Economic capital: It is the equity which is necessary to recover the sudden damages based on a
fixed solvency standard.
Risk-adjusted return on capital: It is the estimated after-tax return taken by its economic
capital. If RAROC is higher than the organization’s cost of capital, the action is workable and
valuable. If RAROC is less than the company’s cost of capital, it will valueless and not
applicable (Lam, 2014).
Managing strategic risk includes with these five steps:
Define business strategy and objectives: There are different types of analysis that help the
companies strategic planning. Such as SWOT analysis. It helps the company to analysis the
integrate risk and opportunities at the decision making stage.
Formed key performance indicators for results measurement: The top KPIs provide
suggestions to the company to develop them. So that the total sales make a low KPI and sales of
the individual consumers drill down for their enquiries (Olson et al.,2015)
Identify risks that can drive variability in performance: It defines future buyers’ need, that
will resolve the problems.
Establish Key risk indicators and tolerance levels for critical risk: KRIs are looking forward
towards the planning of the important signs and awaits for potential roadblocks.

3ENTERPRISE RISK MANAGEMENT
Provide integrated reporting and monitoring: The companies should monitoring the results
and concern about the unpredicted opportunities if arise.
Examples of implemented strategic risk management:
A retail bank plans for an investment bank. The strategy includes large scale functions with a
massive number of products that have interconnected. Due to its all difficulties, the program
faced a risk of failures like plan misses.

4ENTERPRISE RISK MANAGEMENT
References:
Bahl, P. (2013). U.S. Patent No. 8,595,844. Washington, DC: U.S. Patent and Trademark Office.
Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015). Enterprise risk management:
Review, critique, and research directions. Long range planning, 48(4), 265-276.
Lam, J. (2014). Enterprise risk management: from incentives to controls. John Wiley & Sons.
Olson, D. L., & Wu, D. D. (2015). Enterprise risk management (Vol. 3). World Scientific
Publishing Company.