Because there is no single process appropriate for every board and every company, it is the joint responsibility of the board's risk leader and CEO to involve the overall board in the ongoing processes of strategic planning and risk management, according to the Canadian Institute of Chartered Accountants (CICA).
Those avenues must be constructive and appropriate to the circumstances of the company, CICA says.
The organization's "20 Questions Directors Should Ask About Risk" points out that boards of directors are responsible for approving the overall strategic direction of their company. As part of the planning process, boards must clearly understand their company's current business strategy, its critical success factors and the related business risks.
Effective boards actively participate with the CEO and senior management in setting the overall strategic direction of their company and approving its strategic plan.
After considering the opportunities and risks, the board determines the nature and extent of business risks acceptable for the company to bear.
CICA lists 20 questions the board can ask to assess how effective it is in meeting its responsibilities for the oversight of strategic planning and risk. The top five questions are:
1. How do we integrate risk management with the corporation's strategic direction and plan?
The strategic-planning process takes into account the organization's core competencies; its goals and objectives; and the strengths, weaknesses, opportunities and threats faced by the organization. It also takes into account forecasts and assumptions made by the management team.
2. What are our principal business risks?
The board ensures that management has a structured process for identifying, monitoring and managing the organization's business risks and providing regularly scheduled briefings to the board.
Strategic planning includes considering a range of scenarios for major changes in prices, catastrophic events and other principal business risks.
3. Are we taking the right amount of risk?
The strategic planning process takes into account the organization's appetite and capacity for risk and uses techniques such as risk and sensitivity analysis to determine its exposure to risk.
4. How effective is our process for identifying, assessing and managing business risks?
Although boards don't need to be familiar with all the risks facing their organization, they must be satisfied that the organization has comprehensive and effective risk-management processes.
There are a number of techniques and guidelines that can save time and help identify, assess and manage business risks.
5. Do people in this organization have a common understanding of the term "risk"?
Left undefined, "risk" can mean different things to different people. For example, traditionally a "risk" was defined as a specific peril or threat and "risk management" meant buying insurance and taking other steps to protect against financial losses. Today, the terms "risk" and "risk management" have come to cover all aspects of being in business and include both opportunities and threats.
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