Wednesday, February 16, 2011

Responsibilites of Risk Management

Risk Management Responsibilities
The board has overall responsibility for the management of risk as an essential part of its corporate governance responsibilities. Responsibilities below the board level will depend on the extent of delegation to the managers and whether there is a separate risk management function. Everyone who works for the organization has responsibilities for risk management, not just risk specialist whose role I shall discuss below.

The board
            The board of directors has very important role in managing the risk in an organization. The board is accountable for identifying risk management strategy and looking risks as part of its responsibility for the organization’s overall strategy and its responsibilities to shareholders and other stakeholders. It is also responsible for setting appropriate policies on internal controls and trying assurance that the internal control system is functioning effectively. It should also communicate the organization’s strategy to employees.

The Chief Executive
            The chief executive responsibility for ownership of risk management and internal control system is an important part into an organization. The CEO must consider specifically the risk and control environment by focusing amongst other things on how his or her example promotes a good culture. The chief executive should also monitor other directors and senior staff, particularly those whose actions can put the company at significant risk.

Risk Management Committee
            Board of directors needs to consider whether there should be separate board committee, with accountability for supervising and monitoring risk management and identification. If the board doesn’t have a separate committee, under the United Kingdom Combined Code the audit committee will be accountable for risk management.

Risk Management Group
            A risk management group, staffed by senior managers, may be responsible for building on the overall strategy and framework prescribed by the board. This group will add additional detail and will prescribe methods of risk management that operating units will employ. The risk management group will concentrate on risk responses and will also monitor risk management to see that the strategies and policies are operating effectively. The risk management group must report to the board and in turn will receive reports from line managers and employees.

Internal and External Audit
            Risk is integral to work of external and internal audit, both in the terms of influencing how much work they do and also what work they actually do. The external auditors must be concerned with the risks that affect most on the figures shown in the financial accounts. While internal auditor’s role is more flexible, and their approach will depend on whether they focus on the controls that are being operated or the process of overall risk management.

Line Managers
The Turnbull report of United Kingdom pushes the role of management in implementing wide policies on risk and control, involving evaluating and identifying the risk and operating and designing a proper system of internal control. Any risk that fall under the areas of managers should be in their knowledge. The performance indicators they use should assist them to monitor significant financial and business activities and identify when intervention is needed. Line manager should be involved in communicating the policies of risk management system in order to set a good example. Line managers should also be responsible for preparing reports that will be considered by the senior manager and board.

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