How do you assess the quality and effectiveness of your risk governance framework?
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The first aspect to consider is the scope and coverage of your risk governance framework. This means how well your framework identifies, assesses, and addresses the various types of risks that your organization faces, such as strategic, operational, financial, compliance, reputational, or emerging risks. Your framework should cover all the relevant sources, categories, and levels of risks, as well as the interrelationships and dependencies among them. You should also ensure that your framework is consistent and comprehensive across all the units, functions, and activities of your organization.
The second aspect to consider is the roles and responsibilities of the different stakeholders involved in risk governance, such as the board, senior management, risk owners, risk managers, internal auditors, external auditors, regulators, and other parties. Your framework should clearly define and communicate the roles and responsibilities of each stakeholder, as well as the expectations, accountabilities, and authorities for risk management. Your framework should also establish the appropriate reporting lines, escalation procedures, and feedback mechanisms for risk governance.
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I would add Corporate Investigators to the list as important parties to risk management. Corporate Investigation sits in the second line of defence. The Corporate Investigator manages live risk and their work is essential to risk mitigation.
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The board and the senior leadership team's involvement and endorsement is crucial in effective implementation of risk management framework within the organisation. Clear accountabilities, responsibilities and monitoring mechanisms along the reporting lines is also important. We can also look from the external stakeholder perspectives (shareholders, customers, suppliers and their interest on the organisation) - if the organisation has a strong and effective risk management framework, it will attract more and gain their trust).
The third aspect to consider is the policies and procedures that guide and support risk governance in your organization. Your framework should have a set of policies and procedures that outline the objectives, principles, standards, and methodologies for risk management. Your policies and procedures should also specify the risk appetite, risk tolerance, risk limits, risk indicators, risk reporting, risk assurance, and risk culture of your organization. Your policies and procedures should be documented, approved, communicated, and updated regularly.
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Initial policies and procedures should focus on governance procedures for the board of directors: Conflict of Interest and Ethics policies, self-dealing procedures, financial and accounting policies, and whistleblower protection procedures.
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You should regularly consult and refer to your policies and procedures, less they become a once-a-year "compliance" exercise. They need to be "live" documents, and any identified shortcomings should be discussed at review time to ensure they are kept relevant and up-to-date.
The fourth aspect to consider is the tools and techniques that enable and enhance risk governance in your organization. Your framework should have a set of tools and techniques that facilitate the identification, analysis, evaluation, treatment, monitoring, and reporting of risks. Your tools and techniques should also support the integration, aggregation, and visualization of risk information. Your tools and techniques should be fit for purpose, reliable, scalable, and user-friendly.
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Audits must be run by independent third parties and you need to encourage them to highlight all the improvements needed to the organization's financial procedures.
The fifth aspect to consider is the performance and outcomes of your risk governance framework. This means how well your framework achieves the intended results and benefits for your organization, such as risk awareness, risk alignment, risk optimization, risk resilience, and risk value creation. Your framework should have a set of performance indicators and outcome measures that evaluate the effectiveness, efficiency, and maturity of your risk governance. Your framework should also have a feedback loop that enables continuous learning and improvement.
The sixth aspect to consider is the review and assurance of your risk governance framework. This means how often and how thoroughly your framework is reviewed and assured by internal and external parties. Your framework should have a regular review cycle that assesses the adequacy, suitability, and compliance of your risk governance. Your framework should also have an independent assurance function that provides an objective opinion on the quality and effectiveness of your risk governance.
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Organisations should consider the three lines model when building a risk management framework. Internal Audit must be kept firmly in the third line. Investigation and risk advisory would sit in the second line. Business control assurance activity should sit in the first line with oversight from the second.
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