The Role of Boards in Risk Management

A board’s oversight responsibilities extend above overseeing everyday operations. In addition they include a careful evaluation with the nature and extent of risks that face the corporation, its risk “appetite, ” and its ability to lessen those dangers. Consequently, to effectively deal with risk the board will get regular revisions from managing on the corporation’s enterprise and working risks.

Ultimately, these will become provided in a structured formatting that provides the board using a very clear picture from the company’s experience of various kinds of risk. Significantly, such information is offered using advanced models that combine hundreds, or even 1000s of probability-weighted situations into a single end result, such as a Monte Carlo simulation. These are especially useful for evaluating the credit risk of significant suppliers and customers and for evaluating the effect of tactical changes in funding costs.

But some dangers are hard to quantify, like the risk of a severe downturn in the economy that could devastate customer demand or even warned the corporation’s survival. Such existential dangers need to be evaluated in a considerate way which goes beyond classic red, fabricated and green score systems.

The 2008 financial disaster has altered the perspective of many boards troubles roles in managing risk, and shareholders and stakeholders have growing expectations that they play a working role inside the organization’s risk-management procedures. To meet these types of expectations, the board has to be able to get deep in the details of the company’s approach, operations and financial wellbeing – even though making sure that those hard work is aligned to value creation for investors.