Strategy, Governance and Risk Management
Strategic Management
Understand the strategic planning process: vision, mission, objectives, SWOT analysis, PESTLE analysis, and Porter's Five Forces. Know generic strategies (cost leadership, differentiation, focus). Traps: confusing strategic planning with operational planning; misapplying Five Forces to a specific industry.
Corporate Governance
Principles of good governance: accountability, transparency, fairness, responsibility. Board structure: independent directors, audit committee, separation of CEO and chair. ASX Corporate Governance Principles and Recommendations (if applicable). Traps: assuming that a majority independent board guarantees good governance; confusing governance with management.
Risk Management
Risk management process: identify, assess, treat, monitor, communicate. Types of risk: strategic, operational, financial, compliance. Risk treatment options: avoid, reduce, transfer, accept. Internal control and COSO framework. Traps: treating risk management as a one-off exercise; ignoring inherent risk and residual risk.
Worked Example
A company faces a risk of foreign exchange losses. It can transfer the risk by entering into a forward contract, reduce it by matching revenues and costs in the same currency, accept it, or avoid it by not operating internationally. The choice depends on risk appetite and cost-benefit analysis.
Rule of thumb: Risk appetite is the amount of risk an organisation is willing to accept in pursuit of its objectives.