Are you looking at the right risks?

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Whether you are driven by the desire to obtain more value from your Governors meetings or improve your existing risk management then you should make sure you undertake a review of your strategic risks.

At the least, it will confirm what you thought you knew (no bad thing) and at best, it might just change your school altogether and maybe for the better. So, what do we mean by strategic risk?

Those risks that, if realised, could fundamentally affect the way in which your school operates or achieves its outcomes in the next one to three years. These risks will have a detrimental effect on the achievement of your school’s key objectives. The risk realisation will lead to material failure, loss or lost opportunity.

Charitable schools are required to include a disclosure statement in their annual report confirming that the major risks, to which it is exposed, as identified by the Trustees, have been reviewed and systems or procedures have been established to manage those risks. Many schools respond to this requirement from a ‘must do’ perspective rather than a ‘must have’; the result in most cases being a benign and academic approach to the management of risk, ie we have risk register, tick box.

Governing bodies are, however, really missing a trick if they have not spent sufficient time in focusing on the dimension of strategic risk. We know from our experience in all other sectors that Boards are often good at focusing on and preventing operational failures in their many guises but are not using strategic risk to set the organisation’s future agenda and direction. In some cases, we have found that Boards are not keen to even consider strategic risk because they are afraid of what they might find; either as a result of ignorance (do not want to know!) or dogmatic Boardroom behaviours (I do not need to know!).

Both characteristics you might find in less well-governed organisations. There are also organisations that think they know what their strategic risks are, but the risks, by their very nature, are not strategic (or do not meet the criteria in the definition above). Thus, the organisation does not get the real benefit. Don’t let your school be one of these organisations.

To consider whether your Board really understands the school’s major risks, undertaking a strategic risk identification exercise can bring the following benefits:

①  the Governors (collectively and individually) having ‘head room’ and time to consider, debate and articulate the future strategic risks of the organisation, including the risk of missed opportunities;
development of a common understanding of the strategic objectives, risks and organisational values;
an opportunity for the Board to assess its own vulnerability – does it know as much as it should? Or are there any knowledge gaps?
the chance to challenge plans, that will help mitigate the strategic risks, and ensure they are as robust as they should be;
an opportunity to refocus the Board meeting agenda, or at least check that it reflects what it should do; and
demonstrate to others that the Board takes its risk management and governance seriously.

To identify the strategic risks there must be a starting point. In all cases this should be your strategic objectives, after all, this is what your school is looking to achieve.

Your Board is encouraged to determine the correlation between the risks and each strategic priority, enabling them to understand which risk will have the most detrimental effect. This will start to form a strategic risk appetite. A further step is to link the operational risks to strategic risks. By their very nature the strategic risks will take some time to materialise, unlike the operational risks which can present themselves more quickly and be used as early warning indicators. What your Board will have eventually is a risk management methodology that is focused totally on the achievement of its strategic objectives and outcomes.

Make the difference! It does not matter how your Board gets an understanding of the strategic risks being faced, as long as it does. It is always better to be prepared and ready, so that you can protect your school as well as take advantage of the opportunities presented. Governors with an eye on both the short and long term strategic objectives could be the real difference between success and failure.

For more information on how to focus your Governors’ agenda please get in touch for a copy of our ‘Boredom in the Boardroom’ publication.