The Risk Committee in a company is the body responsible for studying the internal and external threats that a firm faces. Based on this, you must also design a prevention system.
It should be noted that this committee focuses mainly on the analysis and decision making for risk management . Its resolutions must be carried out by the other areas of the company.
Functions of the Risk Committee
The most important functions of the Risk Committee are:
- Determine tolerance limits to avoid high risk scenarios. For example, in the case of a bank, the maximum percentage of the portfolio that can be admitted in arrears must be set .
- Develop contingency plans. In that sense, a company must establish, for example, the actions to be taken in the event of an economic slowdown that affects the level of sales.
- Promote a corporate risk culture.
- Receive information from all areas of the institution about the dangers they face.
- Frequently review the limits of exposure to internal and external threats.
- Supervise prevention actions and the fulfillment of their objectives.
- Ensure that the company’s vision, mission and strategic objectives are related to the measures arranged to mitigate eventual contingencies.
- Determine the risks that each area of the company can assume, as well as the limits they must respect.
Members of the Risk Committee
Among the members of the Risk Committee are:
- Risk manager:Executive whose function is to safeguard the assets of the company considering all contingencies. He is responsible for implementing the agreements of the Risk Committee.
- Finance Director or Finance Manager:Evaluates the economic impact of the occurrence of each of the main risks to which the firm is exposed.
- Internal audit manager:Study the internal processes of the company to identify faults that need to be resolved. It may be, for example, that the treasury area is not accountable to management as often as necessary.
- Independent members: They donot belong to the areas of the other members. They contribute to risk management from the perspective of their sector, for example, sales.
As you can see, this committee is multisectoral and transversal to all the activities of the company.
It is also important to clarify that the firm can have its risk management or delegate said function.