Risk Management for Boards in a Pandemic

Controlling risk has always been one of the core functions of boards. However, this year’s pandemic brought that responsibility into sharp focus. In an environment where risks are able to change at breakneck speed it is crucial for boards to be in a learning mode and understand how the latest external developments are changing the risk landscape as well as the longer-term developments that could impact their business.

To achieve this, they must be able assess the risks of existing and new projects objectively. It is possible to identify potential problems using a simple red-amber-green evaluation, but it can be difficult for the board to gain a precise understanding of risks. Boards can benefit by employing quantitative methods to facilitate better communication between managers and www.boardroomteen.com the boards, and to aid the board in understanding the management’s willingness to take risks.

More sophisticated tools, such as those derived from option pricing (the mathematical technique used to calculate the theoretical value of an equity option) are beneficial in helping assess risks and prioritise issues that are emerging. For instance, they may help to highlight the extent to which a particular project is exposed to the oil price risk or credit risk, and provide insight into how risk has been controlled.

The board should also use the knowledge it has about the risk profile of a business to inform its strategic planning process and review and monitor internal controls. It should also ensure that all other committees on the board – including audit, compliance and strategy – are aware of the company’s risk profile.

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