A new thought paper released recently by the International Federation of Accountants (IFAC) provides advice on how boards and management can effectively manage risk as an integral part of managing an organization.
The paper, From Bolt-on to Built-in, positions the management of risk as an indispensable and integral part of decision making and subsequent execution in order for boards and management to ensure their organization makes the best decisions and achieves its objectives, the global accounting group said.
According to the IFAC, the document also:
Demonstrates the benefits of properly integrating the management of risk, including internal control, into the governance, management, and operations of an organization. It also provides ideas and suggestions on how such integration can be achieved. Furnishes practical examples of how professional accountants in business can support their organizations with this integration.
“This paper recognizes what risk management was originally intended to do for an organization – help support effective decision making and improve performance,” IFAC CFO Fayez Choudhury said in a written statement. “Too many organizations don’t realize how useful risk management can be if integrated properly. Without this step – building risk management into your organization – too many management teams are missing the point and missing the benefits.”
In its report, the IFAC identifies eight ways accounting practices and other businesses can effectively integrate the management of risk as an integral part of managing an organization:
Organizations should primarily focus on setting and achieving their objectives to create sustainable value and growth; managing risk is an integral part.
Risk should always be identified, assessed, treated, reported, monitored, and reviewed in relation to the objectives an organization wants to achieve, while giving consideration to the organization’s ever-changing internal and external content.
While risk management is a body of knowledge with global frameworks, standards, and guidance, the application of risk management needs to be tailored to the organization.
Those responsible for setting and achieving the organization’s objectives should also be responsible for effectively managing the related risk.
Decisions should be informed by an appropriate assessment of risk.
High-quality information is crucial to good decision making as it reduces uncertainty.
Effective management of risk is equally important to all managerial steps following the decision-making process.
Organizations need to remain sufficiently agile to make the changes needed to continue to create and preserve value.