University risk management courses typically teach that the board of directors holds the ultimate responsibility for risk oversight across the enterprise. Boards must set the tone at the top when it comes to how the organisation perceives, measures, and responds to risk that are inherent in achieving objectives. With support from the top, risk management processes can flow down to all other areas of the organisation, creating the foundation for building a risk-aware culture.
Sound risk governance is a foundation set by the board. It ensures proper oversight and communication of processes and procedures to improve decision making involving risks. Similarly, sound risk governance ensures decisions stay within the risk appetites set by the board.
Creates a Unified Accountability Model
Risk oversight at the board level, driven by governance structures, allows accountability to become unified by addressing a common enemy of enterprise risk management – that of business silos.
The board and senior leadership sit at a level where their view into all areas of the organisation can be cloudy and lacking the visibility needed to see how risk management processes are being adhered to within different business units. A sound risk governance structure seeks to unify risk management processes working within separate parts of the business into a single lens where performance can be measured and monitored for success.
It is akin to risk orchestration, where all business units are performing in perfect harmony. This is where silo-based accountability transforms situations into a unified accountability of risk at the board level, providing the oversight needed to promote intelligent risk-taking.
Holistically Monitors Internal and External Risks
Sound risk governance allows boards to focus on internal and external risks that could impact the organisation’s pursuit of strategic objectives and result in adverse events eroding the bottom line of the company. If boards must constantly address unexpected events, time is lost and external environments which yield opportunities can be missed. Less “firefighting” by boards allows time to take advantage of internal and external environments of opportunity. Also, time is available to develop opportunities for new markets, profit channels or diversification of the current business portfolio.
Ensures Consistency in Approaches to Risk
Risk governance does not mean the board is responsible for routine day-to-day risk management. Their core duty is to ensure policies and procedures are designed and implemented in unison with the company’s strategy and risk appetite.
Consistency of risk management frameworks and processes at all levels promotes risk awareness and the value it brings to all employees, no matter their status within the organisation. Risk taking beyond the company’s established appetites can be addressed in real time to make sure the business is not taking on practices with elevated levels of uncertainty.
If all levels of the business are aware of how risk management operates within the company, intelligent risk taking can flourish – improving business decisions and subsequent business outcomes.