The best approach to maximise value in the long term is not losing it in the short term.
Portfolio risk management is a domain composed of models and cross-functional processes, in which risk and change should be embraced and navigated. It’s easy to talk about processes that are central to the management of portfolios, such as fostering a culture that embraces change and risk, but how do we encourage a culture of change?
Maintaining an acceptable level of comprehension about the organisational vision, strategy and objectives is the first step. We may call this, the “communication appetite.” Afterall, poor communication is a condition that may result in an environment where risks have a great potential to materialise into issues. That’s when value is lost in the short term.
To facilitate discussions about managing portfolios to both meet long-term objectives and weather short-term risks, managers should foster a common understanding of critical issues around frequency, severity, the specific risk thresholds, key portfolio stakeholder makeup, diversification and overall risk appetite.
The following Risk conversation guide by FCLTGLOBAL aims to facilitate discussions about managing portfolios. Notice how some parts of it, such as the “Risk anticipation” chapter can form the basis for our communication efforts and set the settings for the organisation’s risk culture.
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