Business is fraught with risk. Taking on innovation has risk, striving for growth has risk, and testing new markets has risk. But the biggest risk to business is avoiding risk altogether.
Business is fraught with risk. Taking on innovation has risk, striving for growth has risk, and testing new markets has risk. But the biggest risk to business is avoiding risk altogether.
Taking risks is fundamental in the growth of an organisation and its ability to make a profit or meet financial objectives. Without risk, we:
- overlook innovation
- miss growth opportunities
- fail to adapt to new and changing markets.
Understanding how your organisation feels about risk, or its’ ‘risk tolerance and risk appetite’ is key to empowering management and staff to make decisions that do not feel so risky after all. Establishing your risk tolerance and appetite starts with creating a risk tool kit that gives a clear message on how the organisation treats risk.
Risk management frameworkA risk toolkit is a great way for a board to add value to an organisation. A risk toolkit should contain risk management processes, risk management policies and procedures, risk matrix, scenario planning and a loss event database. For a snapshot of risk management watch our clip, What is Risk Management?
Creating this toolkit should be a joint effort between the CEO and the board, but the board is ultimately responsible for establishing the level of risk the organisation is willing to take and approving the risk management policy that management will implement. The Governance Institute of Australia offers a Certificate in Risk Management, which provides direction for a board and management to create an effective risk toolkit.
When the board and CEO are on the same page, it is easier to establish a good risk culture where the staff have the confidence to ask questions and challenge assumptions about the way that business is conducted.
Good governance principlesHow a board responds to governance may also reflect how it responds to risk; specifically how it embraces stewardship, accountability, transparency and integrity. Setting the tone on what is expected and acceptable will affect how an entire organisation operates and the culture that is created. To learn more about corporate governance meaning watch our clip, What is Corporate Governance?
In our changing world of social accountability, climate influence, and expectations of transparency and accountability, governance is heavily scrutinised, making good governance more important than ever.
These governance factors; stewardship, accountability, transparency and integrity will determine whether an organisation has a culture of ticking boxes and getting tied up with red tape and bureaucracy or exploring opportunities, managing and embracing change, valuing and appreciating contribution and adhering to legislation and regulations.
Governance filters up and down an organisation as the board interacts with the CEO, the CEO interacts with executive management and executive management interacts with staff. If poor management, limited accountability, no transparency and inferior integrity are accepted, it is easy to see how a poor culture is fostered.
As reflected in a risk toolkit, it is the responsibility of the board to establish the governance standards it expects and accepts and how it wants the CEO to report these to the board. Best practice culture starts in the boardroom and moves beyond.
Register now for a Certificate in Governance and Risk Management to learn more about creating a framework for risk management and good governance for your organisation.
