Lesson 3 of 7 · 12 min
Risk governance and the enterprise view
Risk governance is the board's top-down direction of risk management: it sets goals and risk appetite, gives management clear authority and oversees the result, always with the value of the whole enterprise in view.
In short
- Risk governance is the top-down process and guidance that aligns risk management with the goals of the overall enterprise. It comes from the governing body (board), which has fiduciary duties.
- The board sets goals and priorities, defines risk tolerance (acceptable, mitigated, unacceptable risks and the worst tolerable losses) and provides oversight. It does not choose specific mitigation methods for each unit.
- Enterprise risk management (ERM) focuses risk activities on the objectives, health and value of the whole organisation, considering its entire economic balance sheet.
- A risk management committee discusses risk at the operational level; it does not approve the board's policies.
- A chief risk officer (CRO) builds and runs the framework and takes part in strategy; the CEO or CFO should not double as CRO.
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