The value of Risk Management for Boards

The 08 financial meltdown was a wake-up call to boards that they cannot solely rely on management to supervise the organization’s exposures to risk. The new reality is that boards need to incorporate risk as an element of strategy and lifestyle to ensure that the businesses are successful in a risky business environment.

Boards need a framework and guidelines to help them identify, assess, manage and screen risks to assist strategic decision-making. Known as organization risk management (ERM), this approach integrates risk into every aspects of business processes and decision-making. ERM is most powerful when it is a continuous process incorporated into the board’s work, rather than an annual assessment.

Moreover, a board must ensure that it has a good understanding with the latest advances in risk methodologies. Whilst it is certainly not reasonable to anticipate board members to become advisors in the technical subtleties of modern risk evaluation and supervision techniques, a fundamental understand of risk models (for example, sensitivity analysis) might be sufficient.

For example , the Monton Carlo ruse technique combines hundreds, or possibly thousands, of probability-weighted scenarios into one result and is useful in showcasing an obvious overview of risk. A basic knowledge of this advanced model, along with short training courses or learning, is all that a lot of boards need.

Another case in point is the usage of risk situations that are designed to “pressure test” the functioning model. This sort of scenario-based exercise is an excellent way for the purpose of boards to pay attention to the most important www.boardroomteen.com risks and explore what might happen if these were to occur.