The complexity of modern business and the constant search for competitive advantage means that boards must embrace risk management as an essential role. A survey conducted by EY of board members found that risk oversight is, at best, minimal in a lot of organizations. It doesn’t matter what the structure or format of risk reporting, or even the number of times that board members are involved with this issue, many are struggling to keep pace.
The good news is that there are couple of key steps that can 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 breakdown of types of risks that have to be controlled (financial operational, reputational, etc.). A clear and concise framework helps the board of directors to ask appropriate questions for risk management and to know which answers are trustworthy.
The board should utilize sophisticated tools to evaluate risks and decide on the most appropriate combination of risk-taking. 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 age of science. They allow the development of thousands of scenarios that evaluate the likelihood www.boardroomteen.com/how-nonprofit-boards-can-reduce-internal-risk of profit or loss against the impact on an organization’s operating model and strategy.
Finally, the board should be able track the most important indicators of the risks they face and implement trigger-based actions that are activated when the trend is not favorable. This will enable the board to react quickly in a situation like ransomware.