And, coordination of risk management across separate areas is only the first step.
Managers must expand the often times narrow focus of their current risk management
practices, moving from a “tactical” to a “strategic” approach. Where tactical risk
management has limited objectives, usually the hedging of specific contracts or of other
explicit future commitments of the firm, strategic risk management addresses the broader
question of how risk affects the value of the entire firm. It takes into account how risk
affects the firm’s competitive environment, including the pricing of its products, the
quantity sold, the costs of its inputs, and the response of other firms in the same industry. Indeed, a firm can be completely hedged tactically, while still having substantial strategic
exposure, so integrated risk management demands that managers look beyond the usual
definition of “hedging.”