How to Get Boards to Embrace Risk Management

The complexity of modern business and the constant pursuit for competitive advantage mean that boards must adopt risk management as a fundamental job. A survey by EY of board members found that risk oversight is at best basic in a majority of companies. Many board members are struggling to keep pace with the pace, whether it’s in the structure or format for risk reporting or the amount of occasions they are able to engage in this subject.

There are several steps that can be taken to help.

Boards should first develop clear reporting frameworks to enable them to understand the risks their businesses face. This should include a clear breakdown of the kinds of risks that need to be monitored (financial, operational, reputational and so on.). A clear and concise framework helps the board of directors to ask the his response right questions about risk management and to know what answers are reliable.

Second, the board must make use of sophisticated tools to evaluate risks and determine the optimal mix of risk-taking. In addition to more traditional options, such as Value at Risk (VaR) models, tools like Monte Carlo simulation can bring this process into the scientific age and allow the development of thousands of scenarios that weigh the likelihood of profit or loss against the impact on the company’s operating strategy and strategy.

The board must be able monitor the most influential indicators for the threats it faces. It should also be equipped with trigger-based action that can be activated when the trend isn’t positive. This will allow the board to react quickly in a crisis such as ransomware.