'One can't manage what one can't measure.' In the light of this statement, discuss how a company can measure and manage the Strategic Risk.

Strategic Risk Management is the process of identifying, quantifying and mitigating any risk that affects or is inherent in a company's business strategy, strategic objectives and strategy execution. In order to understand how to manage strategic risk, its necessary to start examining how to measure it. A key tenet of ERM is measuring risk with the same yardsticks used to measure results. In this way, companies can calculate how much inherent risk their initiatives contain. Strategic risk can be measured with two key metrics: Economic capital is the amount of equity required to cover unexpected losses based on a predetermined solvency standard. Typically, this standard is derived from the company's target debt rating. Economic capital is a common currency with which any risk can be quantified. Importantly, it applies the same methodology and assumptions used in determining enterprise value, making it ideal for strategic risk. Risk-adjusted return on capital (RAROC) is the anticipated after-tax return on an initiative divided by its economic capital. If RAROC exceeds the company's cost of capital, the initiative is viable and will add value. If RAROC is less than the cost of capital, it will destroy value. Managing strategic risk involves five steps which must be integrated within the strategic planning and execution process in order to be effective: Define business strategy and objectives. There are several frameworks that companies commonly use to plan out strategy, from simple SWOT analysis to the more nuanced and holistic Balanced Scorecard. The one thing that these frameworks have in common, however, is their failure to address risk. It is crucial, then, that companies take additional steps to integrate risk at the planning stage. Establish key performance indicators (KPIs) to measure results. The best KPIs offer hints as to the levers the company can pull to improve them. Thus, overall sales make a poor KPI, while sales per customer lets the company drill down for answers. Identify risks that can drive variability in performance. These are the unknowns, such as future customer demand, regulatory changes, technological changes, employee attrition that will determine results. Establish key risk indicators (KRIs) and tolerance levels for critical risks. Whereas KPIs measure historical performance, KRIs are forward-looking leading indicators intended to anticipate potential roadblocks. Tolerance levels serve as triggers for action. Provide integrated reporting and monitoring. Finally, companies must monitor results and KRIs on a continuous basis in order to mitigate risks or grasp unexpected opportunities as they arise.