The Relationship Between Strategic Planning and Risk Management

by | Mar 13, 2023 | Strategic Planning

As leaders, we often think of strategic planning as a project for when things are already going well. We imagine tackling questions of how to grow—our budget, our impact and our teams. But planning isn’t just for the good times. There’s a strong relationship between strategic planning and risk management—and the two work especially well when paired together.

 

Risk Management on Our Minds

The sudden collapse of Silicon Valley Bank is a shock to investors and Wall Street. Everyone’s wondering whether it’s a sign of things to come. Is a financial crisis brewing?

While Silicon Valley Bank’s failure doesn’t directly affect most small businesses and nonprofit organizations, it does add to a moment already rife with economic uncertainty. Between inflation, interest rate hikes, and talk of a recession on the horizon, there’s plenty of uncertainty to go around. So it’s natural for leaders to take a step back and consider risk management.

Traditionally, risk management is often synonymous with compliance. This encompasses areas like legal and regulatory compliance, financial management, governance, insurance, cybersecurity, and workplace oversight. Organizations are also increasingly considering reputational risk management, which can involve preparing crisis communications plans.

But a critical area for both nonprofit and business leaders is strategic risks. The strategic decisions we make today will affect our organizations’ ability to weather an operating environment that is rapidly changing. That’s where strategic planning plays a key role in your organization’s risk management.

Read more: The Complete Guide to Nonprofit Strategic Planning

 

The Relationship Between Risk Management and Strategic Planning

One of the first steps in the strategic planning process is using tools like an environmental scan and SWOT analysis to understand the external and internal factors that affect an organization today—and in the future. At Funding for Good, we increasingly hear from leaders wondering how to manage the multitude of external threats and trends that could impact their organizations.

 

The Value of Environmental Scans

A structured environmental scan enables leaders to consider a broad range of potential threats and opportunities without getting overwhelmed. For example, a PESTLE analysis guides leaders to think through how external political, economic, social, technological, legal, and environmental factors could affect operations.

Coupling an environmental scan with consideration of more traditional risk management topics helps leaders understand the true scope of challenges they may face. Which is the first step in preparing to weather them head-on.

 

Integrating Risk Management and Strategic Planning

The Stanford Social Innovation Review explains that:

Nonprofits can’t effectively engage in strategic planning until they understand the risks they face.

The same is true for businesses. That’s why Funding for Good always begins our strategic planning process with a SWOTA analysis that assesses each organization’s strengths, weaknesses, opportunities, threats, and achievements (a special addition we make to the traditional SWOT analysis).

This approach allows stakeholders to create ambitious visions and goals—all while staying grounded in the realities that may affect implementation. Indeed, assessing your organization’s risks won’t be helpful unless you also create a plan to address those risks.

By starting your strategic planning process by mapping threats and opportunities, you also create more dynamic and effective long-term goals and strategies. While traditional risk management planning may get siloed into operations and finance functions, the more holistic approach provided through strategic planning can set your organization up for operational, financial, and programmatic success.

Read more: What are the Steps in Strategic Planning?

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