South African companies that put risk management policies in place now, are the ones that will be rewarded when US-style governance principles become obligatory here, says Marius Schoeman, commercial services executive at Business Connexion.
Although the Enron saga led to shareholders requiring more transparency, the fundamentals of risk management have remained the same, Schoeman says.
But while a company still has to identify the risks to which it is exposed, the process of doing so has become more complex, he adds.
"Boards in SA are still grappling with defining their companies` appetites for risk because defining a risk is not easy."
Quantitative risks are easy to evaluate as they can be measured, but qualitative risks - the level of risk on "softer" issues - are not easy to define, Schoeman says.
"If risk is to be managed effectively at all levels of the organisation, debate on qualitative risks needs to happen at board level. This is crucial as the impact a risk will have and the probability of it happening, will have to correlate with the risk tolerance of the company."
Schoeman says risk management cannot begin without an evaluation of the company`s appetite for risk.
Once the risk tolerance has been defined, it must be communicated to all managers, who are then armed with the information to make decisions in line with good governance. The possibility of managing risk is limited without a true tolerance assessment, he adds.
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