Boards should 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. Yet an EY survey of board members suggests that the degree of oversight for risk in many companies is minimal at best. Many board members are struggling to keep up with the pace, whether it’s in the format or structure for risk reporting or the amount of times they engage this topic.
There are several steps that can be taken to help.
The first step is for boards to develop clear reporting structures that make it easy for them to comprehend the risks they face as a company. This should include a clear break-down of the kinds of risks that need monitoring (financial and operational, reputational, etc.). A clear and concise framework also allows the board to ask appropriate questions about risk management — and to recognize which answers are reliable.
The board must utilize sophisticated tools to evaluate www.boardroomteen.com risks and decide on the most appropriate combination of taking risks. The use of Monte Carlo simulations, in addition to more traditional models like Value at Risk models (VaR) can bring this process up to date and even into the age of science. They allow the design of thousands of scenarios that weigh the chance of loss or profit versus the impact on an organization’s operating strategy and model.
In the end, the board must be able monitor the most influential indicators for the risks it’s facing. It should also include trigger-based action that can be activated when the trend isn’t positive. This will enable the board to quickly respond in the event of a crisis, such as ransomware.