The business environment has changed lately and is considered essential that board affiliates understand all their company’s risk profile as well as the effectiveness within the organisation’s risikomanagement. This article needs a fresh look at how boards can accomplish this by centering on key problems, including placing clear goals and assessing the impact of fixing environmental situations.
Nora Aufreiter, McKinsey older adviser, Celia Huber, leader of McKinsey’s board expertise work in North America and Ophelia Usher, www.boardroomteen.com/how-nonprofit-boards-can-reduce-internal-risk/ a member of McKinsey’s global risk & resilience practice share their particular advice for reframeing board risikomanagement.
The pervasiveness of hazards means it is critical that boards make risk an integral part of their strategic thinking, but the board’s role in overseeing this may seem a frightening task. To achieve its duties, the mother board needs to understand the business, their industry as well as the external factors that have an effect on it, such as changing legislation, cybersecurity, operational hazards, legal activities, the economy, etc . It could be impractical for one director to have this breadth of understanding, so a diverse board with differing strengths, competencies (e. g., laws, accounting, economics, human resources), industry activities and risk appetite will naturally gravitate to deepening the knowledge of company-specific risks inside their areas of know-how.
A fundamental area of this is questioning the ‘predictable surprises’—that is normally, events with high-consequence and low-likelihood that could seriously destabilise or even wipe out the business. A fundamental tool designed for evaluating the chance of an event is sensitivity analysis, which reveals how hypersensitive value length and width are to different risk drivers, often put into a huracán of breathing difficulties.
