17 Oct How to Get Boards to Embrace Risk Management
The complexities of modern business and the constant search for competitive advantage means that boards must embrace risk management as a core role. However, an EY survey of board members shows that the degree of oversight for risk in many companies is minimal at best. It doesn’t matter what the format or structure of risk reporting, or the quantity of times that board members interact on this subject, many are struggling to keep up.
There are several steps that can be taken to assist.
Boards should first develop clear reporting structures that enable them to recognize the risks their businesses face. This www.boardroomteen.com/best-governance-strategy-examples/ should include a clear breakdown of the types risk that require monitoring (financial and operational, reputational etc.). A clear framework helps the board of directors to make sure they ask the appropriate questions for risk management and to be aware of the answers that are reliable.
Second, the board needs to employ sophisticated tools to assess the risks they are facing -and to decide on the appropriate mix of risk-taking and mitigation. The use of Monte Carlo simulations, in addition to more traditional models, such as Value at Risk models (VaR), can bring this process up-to-date and into the scientific age. They permit the creation of thousands scenarios which weigh the risk of loss or profit against the impact on an organization’s operating strategy and model.
In the end, the board should be able to monitor leading indicators of the threats it faces. It should also be equipped with trigger-based actions that are activated when the trend isn’t positive. This will enable the board to respond quickly in times of crisis, for example ransomware.