Risk, thanks to the uncertainty it relates to, may be a term that’s typically feared and no so typically embraced. Risk management may indeed sound ominous, given its many components, but sensible corporate governance principles assist tremendously in managing risk.
There are 5 steps in the risk management process, namely:
Analyse risks known
Evaluate the risks
Respond to the risks
Monitor the risks and review the outcomes
The company executive is ultimately responsible for risk management within the organization. In accordance with Principle 8 of the King IV report, the risk governance function may be delegated to a specific committee – however, the executive can never stray from its responsibility. Principle 8 reads: “The governing body should ensure that its arrangements for delegation within its own structures promote independent judgment, and assist with a balance of power and the effective discharge of its duties.” Clearly it is the function of risk governance to play an integral role in the support of an organization achieving its strategic objectives – and certainly not a hindrance to it!
Of paramount importance is the determination of possible risks, the impact of these risks on set organizational goals and in turn the qualification of these risks relative to the organization’s risk tolerance and appetite. The responsibility to determine tolerance and appetite of risk likes with the executive and should be effectively translated to the appointed committee.
Internal risk will be most effectively managed by the implementation of sound corporate governance principles. These risks grow as a result of self-developed business practices and so can be alleviated by proper governing principles. In other words, micro-risk management can be effectively managed and its implication, therefore, is that macro-risk variables (whilst not necessarily as easily mitigated since these are outside the control of the organization) can at least be prepared for if there is proper implementation of the King IV report.
When it comes to effective risk management, it is the opinion of the writer that the greatest risk of all is to “cherry pick” risk that warrants effective management but rather to ensure that ALL risk elements are identified and appropriately managed.
For improved management performance, streamline your business and form a foundation based on risk assessment compliant with corporate governance. It is for this reason that Diligent Consulting wants you to ask yourself: Does your organization have a Corporate Governance profile based on Risk Assessment?