Risk management: The prerequisites for effective board papers

  • Why do board members often not receive the right risk-related information in a suitable format?
  • Board papers need to describe the risk context, and explain how the key documented risks were identified.
  • The emphasis on risk appetite and tolerance is currently being reflected in three distinct areas which need more attention: risk measurement criteria; risk appetite statements; and key risk and control indicators.

Board room

Risk is defined as the ‘effect of uncertainty on objectives’1 and the management of it is focused on understanding and responding to any level of uncertainty that could substantively impact an organisation’s ability to create or preserve value for stakeholders over the short, medium or long term.2

Nowhere is this more keenly seen than in the boardroom, where board members seek to apply risk-based decision-making to ameliorate the evidence of downside risk and exploit the most appropriate opportunities associated with upside risk. As board and board sub-committee meetings draw closer, the executive and their staff begin the herculean task of assembling the papers to support those decisions; pages and pages of documents providing, amongst other items, recommendations, background to the decisions to be made, issues and risk analysis. So why, despite the attempts at standardisation, with specifications increasingly established for the order, length and content of board papers, are board members too often not receiving the right risk-related information in a suitable format?

Lack of clarity around the needs of board members

Clearly, risk-based decision-making has a number of objectives: 

  • inculcating a common process that everybody understands and utilises across the organisation
  • ensuring decisions that can stand up to greater scrutiny and are more robust because of the evidence base provided by application of the process, in contrast to a more ‘intuitive’ approach
  • ensuring better decisions are made, as the more the rigorous and systematic consideration of risk, the more information is revealed that will actually lead to different organisational decisions being made.

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