Risk Management for Boards in a Pandemic
Risk management has always been one of the most important tasks of boards. This year’s pandemic brought this task into sharper focus. In a world of rapid changes boards must be able to adapt and learn. They must be aware of how external developments can impact the risk landscape as well as long-term trends.
To do this, they must be able to evaluate the risks associated with both projects both existing Read Full Article and new in a non-biased manner. While an easy red, amber and green assessment can help in identifying problems that could arise, it can be difficult to gain a clear knowledge of the risks by using this method. Boards can benefit from using quantitative strategies to improve communication between managers and the board, and help the board to better understand the management’s risk-taking habits.
More sophisticated tools, like those derived from option price (the mathematical technique used to calculate the theoretical cost of an equity option), can be very useful in helping to assess the risk and prioritize emerging issues. They could, for instance, help to highlight how much a project is exposed by credit or oil price risks and reveal the risks management strategies.
The board should also take advantage of its knowledge of the risk profile of a business in order to inform its strategic planning process and review and monitor internal controls. It should also ensure that other committees on the board, such as audit, compliance, and strategic have the same understanding of the risk profile.