In pursuing delivery of strategy, the Board also needs to manage the associated risks. Risks are factors that could come to bear that could impact the successful execution of the strategy. They have an associated likelihood of occurring as well as a consequence if they do. Risks can manifest in various ways but ultimately, they have a cost impact on an organization. The goal is to mitigate those risks by actively reducing the likelihood to minimize the overall impact.
A powerful approach that Boards can establish is to proactively define the level of risk that the organization is prepared to accept. This is called setting the “Risk Appetite”. By systematically looking at the different areas of a business and formally capturing acceptable risk the organization can then compare new ideas and initiatives to check whether they fall within tolerable risk. This helps greatly in getting staff to think ahead of time of where they need to apply additional thinking to manage risks back into acceptable levels.
