What is Enterprise Risk Management?
What is Enterprise Risk Management?
As discussed earlier, the Enterprise Risk Management program is very essential for your business or an organization to experience a successful long run in the industry. To make that happen, you can choose Riskcom, where we have several risk management specialists.
As discussed earlier, the Enterprise Risk Management program is very essential for your business or an organization to experience a successful long run in the industry. To make that happen, you can choose Riskcom, where we have several risk management specialists.
Enterprise Risk Management (ERM) is a process that effectively manages the risk across the organization using an effective common risk management framework. The framework may vary from one organization to the other but it involves the same level of people, rules and tools. In simpler terms, the ERM can be defined as the process of planning, organizing, leading and controlling the activities of a firm or an organization to minimize the risk of the organization’s earnings and capital. Strategic, financial and operational risks are also managed by the ERM in addition to the risks associated with the other accidental losses.
Components of Enterprise Risk Management
ERM comprises of eight components that are inter-related to each other based on the decision-making process of the business.
1. Objective settling: You need to find out your business goals before determining the denial or acceptance of the risk. The Board of directors along with the management has to establish the business mission and metrics for successful results to make sure that they align with the decided risk appetite.
2. Risk assessment: Risk assessment forms the foundation of the ERM. To conduct the risk assessment, you need to determine the impact and likelihood to create your Enterprise Risk Management program.
3. Risk response: After establishing the risks that affect your business, you need to frame the responses for your business objectives. You can choose to accept, reduce, avoid, or share risks but you have to develop specific actions for managing risks.
4. Internal environment: Each organization has different strategies to meet their risks. Your risk strategy influences everything from how your employee’s integrity and ethics to the environment you create for them. Creating a corporate work culture may begin with policies but it ends with people.
5. Event identification: After framing the risk appetite and success metrics, organizations must review those events that impact meeting goals. Be it internal or external, events need to be classified as either risks or opportunity then aligned to the overarching strategy.
6. Control activities: Your event identification and risk response will require the procedures and policies to implement the responses.
7. Information and communication: Collecting and sharing information will help the employees to do their work as defined by the objectives and culture your organization sets. The information has to flow irrespective of the departments and role-based manner to make sure that all employees engage in their appropriate business practices.
8. Monitoring: Enterprise Risk Management should be continuously monitored to adjust to changing risk whether through internal audit, external audit as a section of ongoing management activities.
Why should you adopt ERM for your business?
In recent years, a group analyzed the root causes underlying market capitalization declines of 50 percent or more in a single year. The results of this analysis showed that about 80 percent and more of these significant declines were tied to strategic and operational risks. The consequences of these risks were considerable and highlighted the need for comprehensive ERMprograms.
You will need to adopt ERM in your business for a successful long-run in the industry.
Benefits of implementing ERM in your business
1.Creates more risk-focused culture for the organization: Businesses that have implemented ERM experience more focus on the risk at senior levels which results in more discussion of risks at all levels.
2. Standardizes the risk reporting: ERM supports better reporting, structure, and analysis of risks. Standardizing the reports helps to improve the focus of directors and executives by providing the right data that would help to make better risk mitigation decisions. The variety of data including mitigation strategies, emerging risks, etc. helps the officials to understand the most important risk areas.
3. Efficient use of resources: The organizations without ERM have individuals involved with managing and reporting risk across operational units in addition to their work. By developing an ERM program you can efficiently use the resources. They do not replace the need for day-to-day risk management functions.
We, Riskcom have various risk solutions for a changing world. For more information and details about our Enterprise Risk Management program, you can contact us directly or through the website.