Risk Governance: What is it, Why does it matter & What does it involve?
What is it?
Governance refers to the framework of rules, practices, processes, and structures by which an organisation is directed and controlled. It encompasses the mechanisms through which the objectives of the organisation are set, monitored, and achieved, while also ensuring accountability to stakeholders.
Risk governance is a subset of overall governance that focuses specifically on managing risks to the organisation. It involves the processes, structures, and practices through which an organization manages its risks effectively to achieve its objectives while maximising value for its stakeholders.
Why does it matter?
Risk governance provides a framework for identifying, assessing, and managing risks in a systematic and proactive manner, thereby enabling organisations to navigate challenges, capitalize on opportunities, and create value for all stakeholders.
Risk governance is primarily needed to support the Board in its responsibilities by delineating the oversight roles and decision points, and establishing a structured relationship with management.
How does it add value?
- Protects stakeholder interests and preserves reputation.
- Enhances decision-making by providing insights into risks and opportunities.
- Safeguards financial stability by managing financial and operational risks.
- Ensures compliance with regulations and industry standards.
- Promotes innovation and growth by enabling responsible risk-taking.
- Builds trust and confidence among stakeholders through transparency and accountability.
What does it involve?
The following key steps are required to establish an effective risk governance structure:
- Integrate strategy and risk management to ensure integration in overall governance.
- Define risk oversight responsibilities across the Board and sub-committees.
- Establish a risk culture within the organisation that values risk awareness, transparency, and accountability.
- Build risk experience and expertise among board members.
- Define, approve and monitor risk appetite and risk tolerance levels.
- Oversee establishment of risk management frameworks and policies to identify, assess, treat, monitor and report risks to support the achievement of commercial objectives.
Ghassan Zeidan, Founder & CEO of Paragon Consulting Partners
linkedin.com/in/ghassan-zeidan
Risk Management, Internal Audit and ESG Consulting Firm (paragonconsulting.partners)