How to Get Boards to Embrace Risk Management

Boards must ensure that risk management is a primary element of their job due to the complexity of modern business and its relentless pursuit of competitive advantage. However, an EY survey of board members shows that the level of risk management in many organizations is not even basic at best. It’s not the format or structure of risk reporting, or the number of times board members engage on this subject, many are struggling to keep pace.

There are several steps that can be taken to aid.

The first step is for boards to develop clear reporting structures that make it simple for them to understand the risks their companies face. This should include a clear breakdown of the kinds of risk that require monitoring (financial and operational, reputational etc.). A clear and concise framework helps the board of directors to make sure they ask the right questions about risk management and to know which answers are reliable.

The board must make use of sophisticated tools to evaluate the risks they are facing -and then determine the right 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 allow the development of thousands scenarios that evaluate the likelihood of profit or loss against the impact on a company’s operating strategy and model.

The board should also be able track the most important indicators of the risks it is facing and have trigger-based actions which are activated when the trend is not favorable. This will enable the board to respond quickly in a crisis like ransomware.

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