My last few blogs have been about the boardroom. The need to tap into the board’s experience, by asking them the right questions and the approach management should be taking in their relationship with the board. This blog is about ensuring the board’s oversight is first class, triple A if you like.
Management and the board are making decisions under uncertainty. Therefore, the board needs two things to help ensure appropriate oversight. One is a sound decision-making process to manage blind spots, their own psychological biases. There are many aspects to a good decision-making process which I have blogged about before. This one on the decision making through the Cuban Missile Crisis provides the most guidance.
The second is an assessment of how confident management and the board are that the decisions taken pose a reasonable risk for the benefits expected to be derived. That’s right, when it comes to the more important strategic decisions there needs to be a risk assessment.
Sorry if you are now breaking out into a cold sweat. It is only because you
have not been given a good experience of risk assessments in the past.
The trick to a good risk assessment for the board is the three A’s:
- Analysis – Utilise a range of analytical tools to get everyone thinking in a different way so they can test the validity of their decisions.
- Affirmation – Ensure there is an adequate assessment of the implementation of the decision(s) so that the Board can be comfortable they understand the real risk to the organisation and how effectively it is being managed.
- Awareness – Stimulate a discussion of what is coming over the horizon as a train may be hurtling down the tracks with Harry Hindsight driving it.
The three A’s provide you an assessment of risk over three time horizons. The here and now, the medium term based on the controls in place and over-the-horizon risks that may need some attention right now.