Making Successful Use of Risk Management

Many growing businesses will reach an appropriate size whereby they will need to place emphasis on effective Risk Management policies. This becomes essential for companies looking to float on the stock exchange where greater scrutiny will be placed on management and their corporate governance procedures.

We provide some guidance on making successful use of risk management:

-Develop a Risk Matrix for the business to be approved by the Board.

-Review the Risk Matrix on a regular basis. This can add value to the growth of your business and enhance the reputation of management. This is more than a form filling exercise as evidenced by the fact that all major businesses should have one in place.

-The Board should develop tolerance limits for significant business risks.

-Strong risk management will result in fewer unwanted surprises. This is essential for a growing business, particularly if it is reporting to investors and the market.

-Cultural change may be required in order to achieve new objectives set during the Risk Management process. A strong management team will be required to instigate this change.

-Clear dialogue is required between management and the Board who must be engaged in order to utilise the Directors’ expertise to deliver improved performance.

-Internal controls should be geared towards the specific business risks identified during the process.

-Successful Risk Management will improve the governance processes throughout the Group.

-It is important that all staff members understand what is expected of them.

-Set up quality reporting to the Board. The Board require information not data.

-A strong finance team is required in order to enable the Board to make decisions.

-Effective Internal controls must be established and monitored.

-The Board must have sufficient information in order to enable them to identify the key inherent risks in the business and link these to the mitigating controls.

-Non compliance with new RM procedures must not be tolerated in the organisation.

-Ensure that the Bribery Act is adhered to when doing business overseas. This creates a lot of work for large organisations planning to do business overseas. A responsible business will generate investor confidence.

-Without appropriate risk management there is the risk that the CEO and executive management can drive the business in the wrong direction. Glencore is an example of this with its failed attempts to merge with Xstrata. The terms of the merger were rejected by the shareholders who believed the deal was not in the best interests of the company.

-It is important to have a strong Non Executive Director (NED) presence on the Board in order to provide an independent view.  NED’s must have the necessary ability to exercise control.

-Enterprise Risk Management will enable a Board to take on more risk under an improved control environment.

-It is important to engage the Audit Committee and utilise their experience.

-Strong Risk Management can root out inappropriate incentives in the business.

We hope that you have found this a useful insight into Risk Management. Feel free to contact Belsize Accountancy if you require further details.