In the midst of a global pandemic, risk management as a business discipline is becoming more imperative to board rooms across the world.
Boards that in the past have seen risk management more as a tick-the-box activity are attempting to tap into the value of these methodologies. They can identify and treat enterprise vulnerabilities that would otherwise have an adverse impact on the achievement of strategic objectives.
Risk governance plays a key role in helping businesses establish a foundation for proactive risk management.
According to the Office of the Comptroller of the Currency (OCC), risk governance is defined as applying sound corporate governance to the identification, measurement, monitoring, and controlling of risks.
A well-tuned risk governance framework can become an essential component in effectively managing enterprise-wide risks. This article will look into three ways risk governance is vital for organisations in 2021 and beyond.
If 2020 was any indication of the risks that can stem from one major event, establishing sound risk management frameworks is simply common-sense.
Establish and Reinforce Risk Culture
Risk culture is an elusive quality that risk professionals seek to introduce within their organisations.
The ability to transform the behaviours of the internal masses to that of a single risk-aware community, seeking a common purpose set by the leaders of the business, is as close to perfection as risk management can achieve. Risk governance, in and of itself, cannot achieve this significant feat but it does put in place the foundation for enterprise risk management processes that help change behaviours, especially around decision making.
Communicate and Monitor Compliance with Risk Appetite
According to the OCC, risk appetite is an essential component of an effective risk governance framework and reinforces the risk culture. It is critical that organisations set the risk-boundaries that it is willing to accept, in return for the achievement of objectives.
Risk governance also helps drive the communication of the risk appetite throughout the enterprise. A strong risk appetite keeps the organisation focused on achieving objectives, while simultaneously accepting the risk inherent in striving toward any meaningful return.
Improve Quality of Information to Make Informed Decisions
A risk governance approach established at the boardroom and injected at all levels of the organisation puts the risk management processes and methodologies in place to help improve decision making across the enterprise. Once all are taking risks into consideration while making critical decisions and measuring the impact of those decisions in association with the risk appetite set by leadership, quality decisions are the result.
Consistent quality decisions lead to elevated business performance that rewards all levels of the enterprise.
Wrapping Up
Risk governance is not a tick-the-box activity within boardrooms. We are in a globally complex world that is facing new challenges from a global pandemic, sweeping political change, a digital revolution, and a changing climate. It is critical that business leaders build a precise foundation to ensure that risk management flourishes and creates values that becomes immeasurable over time.
