Business Risks and

CHAPTER
its Types 1
Business risk refers to the possibility of a company making inadequate profits due to
varied reasons. Some of these factors are sales volume, per-unit price, input costs,
competition, and the overall economic climate and government regulations, etc.
Common types of business risks include financial risk, strategic risk, operational risk,
reputational risk, etc. This chapter sheds light on business risks and its types to
provide a thorough understanding of the subject.

BUSINESS RISK
Business risk is the exposure a company or organization has to factors that
will lower its profits or lead it to fail.

Anything that threatens a company’s ability to meet its target or achieve its
financial goals is called business risk. These risks come from a variety of sources,
so it’s not al- ways the company head or a manager who’s to blame. Instead, the risks
may come from other sources within the firm or they may be external—from regulations
to the overall economy.
While a company may not be able to shelter itself from risk completely, there are ways
it can help protect itself from the effects of business risk, primarily by adopting a risk
management strategy.
Business risk is associated with the overall operation of a business entity. These are things
that impair its ability to provide investors and stakeholders with adequate returns. For
example, a business manager may make certain decisions that affect its profits or he may
not anticipate certain events in the future, causing the business to incur losses or fail.
Business risk is influenced by a number of different factors
including:

Consumer preferences, demand, and sales volumes.

Per-unit price and input costs.

Competition.

The overall economic climate.

Government regulations.
2 Risk Management CHAPTER 1 Business Risks and its Types 2

The company is also exposed to financial risk, liquidity risk, systematic

risk, exchange-rate risk, and country-specific risk. These make it increasingly
important to minimize business risk.

A company with a higher amount of business risk should choose a capital structure with
a lower debt ratio to ensure it can meet its financial obligations at all times. When
revenues drop, the company may not be able to service its debt, which may lead to
bankruptcy. On the other hand, when revenues increase, it experiences larger profits
and is able to keep up with its obligations.

To calculate risk, analysts use four simple ratios: contribution margin, operation lever-
age effect, financial leverage effect, and total leverage effect. For more complex
calculations, analysts can incorporate statistical methods. Business risk usually occurs
in one of four ways: strategic risk, compliance risk, operational risk, and reputational
risk.

Factors affecting Business Risk

Every business is subject to risks that affect cash flows and profitability. Some come
from internal weaknesses; some come from external threats; and some arise from
positive sources, such as expansion and growth opportunities. Although risks change
over time and vary between businesses and industries, the factors that affect business
risks generally remain the same. To successfully mitigate and manage business risks,
it’s vital to understand these factors.

Internal Factors

Human, technological and physical factors both cause and affect internal
business risks. Human factors can include your employees, vendors and customers.
Technological factors include computers, information technology and business
processes that rely on technology to remain cost effective and efficient. Physical factors
can include equipment malfunctions, downtime and eventual obsolescence. Brick and
mortar businesses also face risks relating to building maintenance and losses the
business may incur due to slips, falls or other accidents. Internal factors are generally
those you can predict, plan for and control.

External Factors

External economic, natural and political factors are those over which you have
little or no control. As a result, the risks these factors pose can affect your business to
a great degree. On the other hand, external factors most often aren’t business-specific,
so when an external factor affects your business, it’s most likely also affecting the
competition. The key to mitigating external risks lies in constantly monitoring your
3 Risk Management CHAPTER 1 Business Risks and its Types 3

customers, the economy, pending legislation and your competitors. An emergency plan
can mitigate risks that a fire, flood or a tornado might pose.

Cash Management

Cash-handling policies and procedures, purchasing decisions and budget

allotments can all affect cash flow risks. Risks pertaining to fraud and employee theft
increase without strong cash controls, including separation of duties, an authorization
system and regular transaction reviews. A weak or nonexistent procurement policy can
lead to poor purchase decisions, vendor favoritism and overpayment risks. Without
regular monitoring, even well thought out budget allotments can go awry when market
conditions change.

Personal Factors

Personal conflicts and complacency are additional factors that can affect business
risks, according to the U.S. Small Business Administration. For example, balancing work
with personal and family obligations can affect both you and your employees. A
common scenario occurs when a key employee submits a time-off request for the
busiest day of the month. Complacency can lead to missing opportunities for growth
and increased profitability because you’re satisfied with the status quo.

FINANCIAL RISK
FINANCIAL RISK is a term that can apply to businesses, government
entities, the financial market as a whole, and the individual. This risk is the
danger or possibility that share- holders, investors, or other financial
stakeholders will lose money.

There are several specific risk factors that can be categorized as a financial risk. Any
risk is a hazard that produces damaging or unwanted results. Some more common
and distinct financial risks include credit risk, liquidity risk, and
operational risk.

Financial risk is a type of danger that can result in the loss of capital to interested parties.

a. For governments, this can mean they are unable to control monetary
policy and default on bonds or other debt issues.

b. Corporations also face the possibility of default on debt they undertake but
may also experience failure in an undertaking the causes a financial
burden on the business.

c. Individuals face financial risk when they make decisions that may
jeopardize their income or ability to pay a debt they have assumed.
4 Risk Management CHAPTER 1 Business Risks and its Types 4

d. Financial markets face financial risk due to various macroeconomic

forces, changes to the market interest rate, and the possibility of default
by sectors or large corporations.

Financial risks are everywhere and come in many different sizes, affecting everyone.
You should be aware of all financial risks. Knowing the dangers and how to protect
yourself will not eliminate the risk, but it will mitigate their harm.

Financial Risks for Businesses

It is expensive to build a business from the ground up. At some point, in any company’s
life, they will need to seek outside capital to grow. This need for funding creates a
financial risk to both the business and to any investors or stakeholders invested in the
company.

CREDIT RISK— also known as default risk—is the danger associated with
borrowing money. Should the borrower become unable to repay the loan, they will
default. Investors affected by credit risk suffer from decreased income from loan
repayments, as well as lost principal and interest. Creditors may also experience a rise
in costs for collection of the debt.

When only one or a handful of companies are struggling it is known as a

SPECIFIC RISK. This danger, related to a company or small group of companies,
includes issues related to capital structure, financial transactions, and exposure to
default. The term is typically used to reflect an investor’s uncertainty of
collecting returns and the accompanying potential for monetary loss.

Businesses can experience OPERATIONAL RISK when they have poor

management or flawed financial reasoning. Based on internal factors, this is the
risk of failing to succeed in its undertakings.

Financial Risks for Governments

Financial risk also refers to the possibility of a government losing control

of their monetary policy and being unable or unwilling to control inflation and
defaulting on its bonds or other debt issues. Governments issue debt in the form
of BONDS and NOTE to fund wars, build bridges and other infrastructure
and pay for its general day-to-day operations. The U.S. government debt known
as Treasurys and considered one of the safest investments in the world.

The list of governments that have defaulted on debt they issued includes
Russia, Argentina, Greece, and Venezuela. Sometimes these entities will only
delay debt payments or pay less than the agreed upon amount, either way, it causes
financial risk to investors and other stakeholders.
5 Risk Management CHAPTER 1 Business Risks and its Types 5

Financial Risks for the Market

Several types of financial risk are tied to financial markets. Many

circumstances can impact the financial market. As demonstrated during the 2007-
2008 global financial crisis, when a critical sector of the market struggles it can impact
the monetary well-being of the entire marketplace. During this time, businesses closed,
investors lost for- tunes, and governments were forced to rethink their monetary policy.
However, many other events also impact the market.

Volatility brings uncertainty about the fair value of market assets. Seen as
a statistical measure, volatility reflects the confidence of the stakeholders that
market returns match the actual valuation of individual assets and the
marketplace as a whole. Measured as implied volatility (IV) and represented by
a percentage, this statistical value indicates the bullish or bearish—market on the
rise versus the market in decline—view of investments. Volatility or equity risk can cause
abrupt price swings in shares of stock.

DEFAULT and changes in the market interest rate can also pose a financial
risk. DEFAULTS happen mainly in the debt or bond market as companies
or other issuers fail to pay their debt obligations, harming investors.
Changes in the market interest rate can push individual securities into being
unprofitable for investors, forcing them into lower paying debt securities or facing
negative returns.

Asset-backed risk is the chance that asset-backed securities—pools of

various types of loans—may become volatile if the underlying securities also change
in value. Subcategories of asset-backed risk involve prepayment—the borrower paying
off a debt early, thus ending the income stream from repayments—and significant
changes in interest rates.

Financial Risks for Individuals

Individuals can face financial risk when they make poor decisions. This
hazard can have wide-ranging causes from taking an unnecessary day off of work to
investing in highly speculative investments. Every undertaking has exposure to pure
risk—dangers that cannot be controlled, but some are done without fully realizing the
consequences.

Liquidity risk comes in two flavors for investors to fear.

1. The first involves securities and assets that cannot be purchased or sold quickly
enough to cut losses in a volatile market. Known as market liquidity risk this is
a situation where there are few buyers but many sellers.
2. The second risk is funding or cash flow liquidity risk. Funding liquidity risk is
the possibility that a corporation will not have the capital to pay its debt, forcing
it to default, and harming stakeholders.
6 Risk Management CHAPTER 1 Business Risks and its Types 6

Speculative risk is one where a profit or gain has an uncertain chance of

success. Perhaps the investor did not conduct proper research before investing,
reached too far for gains, or invested too large of a portion of their net worth into a
single investment.

Investors holding foreign currencies are exposed to currency risk because different
factors, such as interest rate changes and monetary policy changes, can alter the
calculated worth or the value of their money. Meanwhile, changes in prices because of
market differences, political changes, natural calamities, diplomatic changes, or
economic conflicts may cause volatile foreign investment conditions that may expose
businesses and individuals to foreign investment risk.

Tools to Control Financial Risk

Luckily there are many tools available to individuals, businesses, and governments that
allow them to calculate the amount of financial risk they are taking on.

The most common methods that investment professionals use to analyze risks
associated with long-term investments—or the stock market as a whole—include
fundamental analysis, technical analysis, and quantitative analysis.

a. FUNDAMENTAL ANALYSIS is the process of measuring a security’s

intrinsic value by evaluating all aspects of the underlying business
including the firm’s assets and its earnings.

b. TECHNICAL ANALYSIS is the process of evaluating securities

through statistics and looks at historical returns, trade volume, share
prices, and other performance data.

c. QUANTITATIVE ANALYSIS is the evaluation of the historical

performance of a company using specific financial ratio calculations.

For example, when evaluating businesses, the debt-to-capital ratio measures the pro-
portion of debt used given the total capital structure of the company. A high proportion
of debt indicates a risky investment. Another ratio, the capital expenditure ratio, divides
cash flow from operations by capital expenditures to see how much money a company
will have left to keep the business running after it services its debt.

In terms of action, professional money managers, traders, individual investors, and

corporate investment officers use hedging techniques to reduce their exposure to
various risks. Hedging against investment risk means strategically using instruments—
such as options contracts—to offset the chance of any adverse price movements. In
other words, you hedge one investment by making another.

Pros and Cons of Financial Risk

Financial risk, in itself, is not inherently good or bad but only exists to different
degrees. Of course, “risk” by its very nature has a negative connotation, and financial
risk is no exception. A risk can spread from one business to affect an entire sector,
7 Risk Management CHAPTER 1 Business Risks and its Types 7

market, or even the world. Risk can stem from uncontrollable outside sources or forces,
and it is often difficult to overcome.

While it isn’t exactly a positive attribute, understanding the possibility of financial

risk can lead to better, more informed business or investment decisions. Assessing the
degree of financial risk associated with a security or asset helps determine or set that
investment’s value. Risk is the flip side of the reward. One could argue that no progress
or growth can occur, be it in a business or a portfolio, without the assumption of some
risk. Finally, while financial risk usually cannot be controlled, exposure to it can be
limited or managed.

Pros:

o Encourages more informed decisions

o Helps assess value (risk-reward ratio)

o Can be identified using analysis tools

Cons:

o Can arise from uncontrollable or unpredictable outside forces

o Risks can be difficult to overcome

o Ability to spread and affect entire sectors or markets

STRATEGIC RISK
STRATEGIC RISKS are those that arise from the fundamental decisions
that directors take concerning an organization’s objectives. Essentially,
strategic risks are the risks of failing to achieve these business objectives.

A useful subdivision of strategic risks is:

BUSINESS RISKS: Risks that derive from the decisions that the board takes
about the products or services that the organization supplies. They include risks
associated with developing and marketing those products or services, economic
risks affecting product sales and costs, and risks arising from changes in the
technological environment which impact on sales and production.

NON-BUSINESS RISKS: Risks that do not derive from the products or

services supplied. For example, risks associated with the long-term sources of
finance used. Strategic risk levels link in with how the whole organization is
positioned in relation to its environment and are not affected solely by what the
directors decide. Competitor actions will affect risk levels in product markets,
8 Risk Management CHAPTER 1 Business Risks and its Types 8

and technological developments may mean that production processes, or

products, quickly become out-of-date.

Strategic risks are determined by board decisions about the objectives and direction
of the organization. Board strategic planning and decision-making processes, there-
fore, must be thorough. The UK Cadbury report recommends that directors establish
a formal schedule of matters that are reserved for their decision. These should include
significant acquisitions and disposals of assets, investments, capital projects, and
treasury policies.

To take strategic decisions effectively, boards need sufficient information about how
the business is performing, and about relevant aspects of the economic, commercial,
and technological environments. To assess the variety of strategic risks the organization
faces, the board needs to have a breadth of vision; hence governance reports
recommend that a board be balanced in skills, knowledge, and experience.

However, even if the board follows corporate governance best practice concerning the
procedures for strategic decision making, this will not necessarily ensure that the
directors make the correct decisions.

For example, the severe problems that the UK’s Northern Rock bank faced were not
caused by a lack of formality. Northern Rock’s approach to risk management conformed
to banking regulations, but its strategy was based on the assumption that it would
continually be able to access the funds it required. In 2007, its funding was disrupted
by the global credit crunch resulting from problems in the US subprime mortgage
market, and UK Government action was required to rescue the bank.

The report Enterprise Governance – Getting the Balance Right, published by the
Chartered Institute of Management Accountants (CIMA) and the International
Federation of Accountants (IFAC) highlighted choice and clarity of strategy, and
strategy execution, as key issues underlying strategic success and failure. Other issues
identified in the report were the ability to respond to abrupt changes or fast-moving
conditions, and (the most significant issue in strategy-related failure) the undertaking
of unsuccessful mergers and acquisitions.

Managing Strategic Risks

Strategic risks are often risks that organizations may have to take in order
(certainly) to expand, and even to continue in the long term. For example, the
risks connected with developing a new product may be very significant – the technology
may be uncertain, and the competition facing the organization may severely limit sales.
However, the alternative strategy may be to persist with products in mature markets, the
sales of which are static and ultimately likely to decline.

An organization may accept other strategic risks in the short term, but take
action to reduce or eliminate those risks over a longer timeframe. A good
example of this sort of risk, would include fluctuations in the world supply of a key raw
material used by a company in its production. For instance, the problem can be global,
9 Risk Management CHAPTER 1 Business Risks and its Types 9

the business may be unable to avoid it, in the short term, by changing supplier.
However, by redesigning its production processes over the longer term, it could reduce
or eliminate its reliance on the material.

Ultimately, some risks should be avoided and some business opportunities

should not be accepted, either because the possible impacts could be too
great (threats to physical safety, for example) or because the probability of
success could be so low that the re- turns offered are insufficient to warrant
taking the risk. Directors may make what are known as ‘go errors’ when they
unwisely pursue opportunities, risks materialize, and losses exceed returns.

However, directors also need to be aware of the potentially serious consequences of

‘stop errors’ – not taking opportunities that should have been pursued. A competitor
may take up these opportunities, and the profits made could boost its business.

OPERATIONAL RISK
OPERATIONAL RISK summarizes the uncertainties and hazards a
company faces when it attempts to do its day-to-day business activities
within a given field or industry. A type of business risk, it can result from
breakdowns in internal procedures, people and systems—as opposed to problems
incurred from external forces, such as political or economic events, or inherent to the
entire market or market segment, known as systematic risk.

Operational risk can also be classified as a variety of unsystematic risk,

which is unique to a specific company or industry.

Operational risk focuses on how things are accomplished within an

organization and not necessarily what is produced or inherent within an
industry. These risks are often associated with active decisions relating to how the
organization functions and what it prioritizes. While the risks are not guaranteed to
result in failure, lower production, or higher overall costs, they are seen as higher or
lower depending on various internal management decisions.

Because it reflects man-made procedures and thinking processes,

operational risk can be summarized as a human risk; it is the risk of
business operations failing due to human error. It changes from industry to
industry and is an important consideration to make when looking at potential
investment decisions. Industries with lower human interaction are likely to have lower
operational risk.

Examples of Operational Risk

1. One area that may involve operational risk is the maintenance of necessary
systems and equipment. If two maintenance activities are required, but it is
determined that only one can be afforded at the time, making the choice to
10 Risk Management CHAPTER 1 Business Risks and its Types 10

perform one over the other alters the operational risk depending on which
system is left in disrepair. If a system fails, the negative impact is associated
directly with the operational risk.

2. Other areas that qualify as operational risk tend to involve the personal element
within the organization. If a sales-oriented business chooses to maintain a
subpar sales staff, due to its lower salary costs or any other factor, this behavior
is considered an operational risk. The same can be said for failing to properly
maintain a staff to avoid certain risks. In a manufacturing company, for
example, choosing not to have a qualified mechanic on staff, and having to rely
on third parties for that work, can be classified as an operational risk. Not only
does this impact the smooth functioning of a system, but it also involves
additional time delays.

3. The willing participation of employees in fraudulent activity may also be seen as

operational risk. In this case, the risk involves the possibility of repercussions if
the activity is uncovered. Since individuals make an active decision to commit
fraud, it is considered a risk relating to how the business operates.

Operational Risk vs. Financial Risk

In a corporate context, financial risk refers to the possibility that a company’s cash
flow will prove inadequate to meet its obligations—that is, its loan repayments and
other debts. Although this inability could relate to or result from decisions made
by management (especially company finance professionals), as well as the
performance of the company products, financial risk is considered distinct from
operational risk. It is most often related to the company’s use of financial leverage
and debt financing, rather than the day-to-day efforts of making the company a
profit- able enterprise.

COMPLIANCE RISK
COMPLIANCE RISK is exposure to legal penalties, financial forfeiture and
material loss an organization faces when it fails to act in accordance with
industry laws and regulations, internal policies or prescribed best
practices.

Compliance risk is also sometimes known as integrity risk. Many compliance

regulations are enacted to ensure that organizations operate fairly and ethically. For
that reason, compliance risk is also known as integrity risk.

Compliance risk management is part of the collective governance, risk management and
compliance (GRC) discipline. The three fields frequently overlap in the areas of incident
management, internal auditing, operational risk assessment, and compliance with
regulations such as the Sarbanes-Oxley Act. Penalties for compliance violations include
11 Risk Management CHAPTER 1 Business Risks and its Types 11

payments for damages, fines and voided contracts, which can lead to the organization’s
loss of reputation and business opportunities, as well as the devaluation of its
franchises.

REPUTATIONAL RISK
REPUTATIONAL RISK is a threat or danger to the good name or standing
of a business or entity. Reputational risk can occur in the following ways:

 Directly, as the result of the actions of the company itself.

 Indirectly, due to the actions of an employee or employees.

 Tangentially, through other peripheral parties, such as joint venture partners or

suppliers.

In addition to having good governance practices and transparency, companies need

to be socially responsible and environmentally conscious to avoid or minimize
reputational risk.

Reputational risk is a hidden danger that can pose a threat to the survival of
the biggest and best-run companies. It can often wipe out millions or billions of
dollars in market capitalization or potential revenues and can occasionally result in a
change at the uppermost levels of management.

Reputational risk can also arise from the actions of errant employees, such
as egregious fraud or massive trading losses disclosed by some of the world’s biggest
financial institutions. In an increasingly globalized environment, reputational risk can
arise even in a peripheral region far away from home base.

In some instances, reputational risk can be mitigated through prompt damage control
measures, which is essential in this age of instant communication and social media
networks. In other instances, this risk can be more insidious and last for years. For
example, gas and oil companies have been increasingly targeted by activists be- cause
of the perceived damage to the environment caused by their extraction activities.

Example of Reputational Risk

Reputational risk exploded into full view in 2016 when the scandal involving the
opening of millions of unauthorized accounts by retail bankers (and encouraged or
coerced by certain supervisors) was exposed at Wells Fargo.

The CEO, John Stumpf, and others were forced out or fired. Regulators subjected the
bank to fines and penalties, and a number of large customers reduced, suspended,
or discontinued altogether doing business with the bank. Wells Fargo’s reputation
was tarnished, and the company continues to rebuild its reputation and its brand into
2019.
12 Risk Management CHAPTER 1 Business Risks and its Types 12

ROLE OF THE BOARD IN RISK MANAGEMENT

In decades past, boards could rely solely on management to oversee and manage risk.
The 2008 financial crisis, also known as the global financial crisis, was considered to be
the worst financial crisis since the Great Depression. Harsh economic times hit boards
of directors squarely, as they came face to face with complex legal issues and failing
businesses. The financial downfall, along with the subsequent fallout, was an abrupt
wake-up call for boards of directors to delve deeper into their organization’s risk man-
agement practices.

The pervasiveness of risk in the workings of everyday business means that boards must
factor risk as an integral part of organizational strategy. Technology has increased the
pace of business transactions globally, which has increased the volume and speed of
product cycles. Today’s businesses are wrought with complexities and litigiousness like
never before—issues that hold the potential to destroy organizations overnight.

Increased Scrutiny over Risk

In addition to management, boards are increasingly being held accountable for man-
aging risk. Corporate governance rules and credit rating agencies are taking a stronger
role in corporate risk by forming policies that address risk management policies. These
emerging trends are forcing boards to assess past organizational exposures to risks.
Economic trends also demand boards to be forward-thinking with regard to overseeing
current financial risks and exposures to minimize the impact of financial crises.

Since the 2008 financial crisis, the New York Stock Exchange’s corporate governance
rules now require that risk assessment and risk management be included in audit com-
mittee discussions. Corporate credit ratings now include an assessment of commercial
risk management processes, as required by commercial credit rating agencies, such as
Standard and Poor’s. These changes mean that risk management items are becoming
staples of board agendas.

Potential Loss Areas

Exposures to financial loss can include real and personal property, as well as property
that is tangible and intangible, and personnel losses. Revenues can be lost by profit
margins or expense increases. Poor risk management exposes organizations to civil and
statutory offences, which can result in fines or other legal complications. The result of
not managing risks can quickly deplete an organization’s reserves. Examples of risks
with financial impact include:

Retained losses: Insurance deductibles, retention amounts, or exclusions.

Net insurance proceeds.

13 Risk Management CHAPTER 1 Business Risks and its Types 13

Costs for loss control measures.

Claim management expenses.

Administrative costs to manage programs.

Finding the Balance between Taking and Managing Risks

Board members, executive directors, managers, and stakeholders know that there are
strategic advantages to taking risks and that realizing growth requires some degree of
risk. While managing complex business transactions, managers struggle to strike a bal-
ance between adding value while managing risks.

Development of Policies, Procedures and Awareness

The board should not take a direct role in managing risks. The board’s role should be
limited to risk oversight of management and corporate issues that affect risk. Without
becoming directly involved in managing risk, boards can fulfill their role in risk over-
sight by:

Developing policies and procedures around risk that are consistent with the
organization’s strategy and risk appetite.

Following up on management’s implementation of risk management policies

and procedures.

Following up to be assured that risk management policies and procedures func-

tion as they are intended.

Taking steps to foster risk awareness.

Encourage an organizational culture of risk adjusting awareness.

Areas of Risk Management Oversight

Boards should be looking at areas that either may be subject to risk or may be out of
compliance with established best practices on risk management, from a domestic and
global standpoint. Specific areas that boards should review include:

Fiduciary duties.

Federal and state laws and regulations.

Stock exchange listing requirements.

Established and evolving best practices, domestic and worldwide.

Risk management may fall under more than one committee, which may be the risk
14 Risk Management CHAPTER 1 Business Risks and its Types 14

management committee or the audit committee. To effectively cover all areas of risk,
committees should be coordinated so that communication between them regarding risk
occurs horizontally and vertically. Committees report back to the board regarding the
adequacy of risk management measures so that the board has confidence that man-
agement can support them.

Risk Management Oversight from a Broad Perspective

Board members need to have a good understanding of risk management, even when
they lack expertise in that area. Boards may lean on the expertise of outside consultants
to help them review company risk management systems and analyze business specific
risks. Boards should perform a formal review of risk management systems, annually.

As part of the annual review, boards should review risk oversight policies and proce-
dures at the board and committee levels and assess risk on an ongoing basis. It’s help-
ful to familiarize the board with expectations within the industry or regulatory bodies
that the organization operates in by arranging for a formal annual presentation on risk
management best practices. The annual risk management review should include com-
munication from management about lessons learned from past mistakes.

Risk management issues have been at an all-time high. Boards can continue to ex-
pect risk management to be an increasingly challenging part of board decision-making.
There is a lot at stake with poor risk management practices. The impact will be felt from
the top to the bottom and transcend across the board, management, and stakehold- ers.
Taking a focused approach to risk management should be more than a compliance
mechanism. Risk management needs to be an integral part of the organization’s cul-
ture, strategy, and day-to-day business operations. Of all the risk management chal-
lenges that boards face, the greatest challenge is in navigating organizational growth
while protecting the organization from unnecessary risk, so that it doesn’t impact the
business negatively. Today’s commercial and economic climate demands that boards
step up their game with an intense focus on risk management.

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