Risk Management for Boards in a Pandemic
Boards have always had a core job: managing risk. This year’s pandemic has brought this responsibility into sharper focus. In an environment where risks are able to change at breakneck speed boards need to get into a learning phase and understand how the latest events are transforming the risk landscape and long-term trends that could affect their business.
To achieve this, they need to be able to evaluate the risk of both projects both existing and new in an objective manner. While an easy green, red and amber assessment can be useful in identifying possible issues, it can www.boardroomteen.com/how-do-you-write-a-board-resolution/ be difficult to achieve a precise understanding of the risks with this approach. Boards can benefit by applying quantitative methods to help encourage better communication between managers and the boards, and to assist the board in understanding the risk appetite of management.
More sophisticated tools, like those derived from option pricing (the mathematical method used to calculate the theoretical price of an equity option) can be extremely beneficial in helping assess risk and prioritise emerging issues. For instance, they may assist in identifying the extent to which a project is at risk from oil price risk or credit risk. They can also provide insight into how risk has been controlled.
The board should also draw upon its knowledge of a company’s risk profile to inform strategic planning, as in addition to reviewing and monitoring internal controls. It should also make sure that other board committees, like audit, compliance, and strategic have the same understanding of the risk profile.