How to Get Boards to Embrace Risk Management
The complexities of modern business and the relentless pursuit for competitive advantage mean that boards must adopt risk management as a core job. However, an EY survey of board members indicates that the level of oversight for risk in many organizations is at best rudimentary. It doesn’t matter what the format or structure of risk reporting, or even the number of times that board members interact on this subject, many are struggling to keep up.
The good news is that there are a few key steps that can help.
First, boards should develop clear reporting structures that make it simple for them to understand the risks they face as a company. This should include a clear breakdown of the kinds of risks that need monitoring (financial and operational, reputational etc.). A clear and concise framework will make it easier for the board of directors to formulate the right questions about risk management and to be aware of the answers that are trustworthy.
Additionally, the board must to use sophisticated tools to assess the risks they face — and to determine the appropriate mix of risk-taking and mitigation. In addition to the more conventional options like Value at Risk (VaR) models, tools like Monte Carlo simulation can bring this process into the age of science and allow the development of thousands of scenarios that weigh the potential of loss or profit against the impact on the company’s operating strategy and strategy.
In addition, the board must be able to track leading indicators of the risks it is facing and have trigger-based actions that can be activated if the trend isn’t favorable. This will allow the board to react quickly in a crisis such as ransomware.
