How to Get Boards to Embrace Risk Management

The complexity of modern business and the constant pursuit for competitive advantage mean that boards need to embrace risk management as a fundamental function. However, an EY survey of board members shows that the level of risk oversight in many companies is minimal at best. Many board members are struggling to keep up with the pace, whether in the structure or format for risk reporting or how many times they have to discuss the subject.

There are several steps that can be taken to help.

First, boards should develop clear reporting www.boardroomteen.com/how-nonprofit-boards-can-reduce-internal-risk structures that make it easy for them to understand the risks they face as a company. This should include an explanation of the types of risks that have to be controlled (financial or operational, reputational and more.). A clear framework makes it easier for the board of directors to ask the appropriate questions for risk management and to know which answers are reliable.

The board must to employ sophisticated tools to assess the risks they are exposed to -and determine the best balance between risk-taking and mitigation. In addition to the more traditional options like Value at Risk (VaR) models, tools like Monte Carlo simulation can bring this process into the scientific age and allow the creation of thousands of scenarios that weigh the probabilities of loss or profit against the impact on the company’s business strategy and operating model.

Finally, the board should be able track the most important indicators of the risks it is facing and have trigger-based actions that are activated when the trend is not in favor. This will allow the board to respond quickly in a crisis such as ransomware.