How can you communicate operational risks to the audit committee?

1 Know your audience

The first step in communicating operational risks to the audit committee is to understand who they are, what they expect, and how they prefer to receive information. The audit committee typically consists of independent directors with financial and business expertise, who have a fiduciary duty to protect the interests of the shareholders and stakeholders. They expect to receive accurate, timely, and comprehensive information on the organization's risk profile, exposure, appetite, and response. They also prefer to receive information in a structured and consistent format, such as a risk dashboard or a risk register, that highlights the key risks, their impact, likelihood, and mitigation actions.

2 Align with the risk framework

The second step in communicating operational risks to the audit committee is to align your information with the organization's risk management framework and strategy. The risk management framework defines the objectives, principles, policies, processes, and roles for identifying, assessing, monitoring, and reporting risks. The risk strategy sets the risk appetite, tolerance, and limits for the organization, as well as the risk culture and governance. You need to ensure that your information is consistent with the framework and strategy, and that it reflects the current and emerging operational risks that may affect the organization's performance and objectives.

3 Focus on the material risks

The third step in communicating operational risks to the audit committee is to focus on the material risks that pose the most significant threat or opportunity to the organization. Material risks are those that have a high impact and likelihood, and that may require immediate or urgent attention or action. You need to prioritize and categorize the material risks according to their source, nature, and level, and provide a clear and concise description of each risk, its root cause, its potential consequences, and its status. You also need to provide evidence and data to support your risk assessment and analysis, such as key risk indicators, metrics, benchmarks, or trends.

4 Explain the risk response

The fourth step in communicating operational risks to the audit committee is to explain the risk response that the organization has implemented or planned to address the material risks. The risk response includes the actions, controls, and resources that aim to reduce, transfer, avoid, or accept the risk, depending on the risk appetite and strategy. You need to demonstrate how the risk response aligns with the risk objectives and expectations, and how it contributes to the risk performance and value creation of the organization. You also need to indicate the progress, results, and challenges of the risk response, and the recommendations or feedback for improvement or escalation.

6 Deliver with confidence

The final step in communicating operational risks to the audit committee is to deliver your information with confidence and professionalism. You need to present your information in a clear, concise, and coherent way, using appropriate language, tone, and style. You need to use visual aids, such as charts, graphs, or tables, to enhance your message and highlight the key points. You need to engage with the audit committee, listen to their feedback, and address their questions or concerns. You also need to follow up with any action items, updates, or reports that the audit committee requests or requires.