An Overview of Enterprise Risk Management

One of the most critical challenges for businesses today is determining how much risk they can tackle to create value. Research indicates that six out of ten senior executives lack confidence in their company’s risk management practices.

If you want to be one among the four who are confident in handling risk, read on and enhance your knowledge of ERM.

Enterprise Risk Management (ERM) is defined as the process of planning, organizing, leading and controlling the activities of an organization in order to minimize the effects of risk on its capital and earnings.

ERM is a new approach to risk management which differs from traditional ones in terms of focus, objective, scope, emphasis and application. Under the new approach, the uncertainties that can affect both tangible and intangible assets of the organization are taken into account. Hence, ERM will help you align your organization’s strategies, people, processes, technology and knowledge so that the company is well equipped to handle risk.

Again, by addressing the need for internal control measures, ERM helps your company anticipate and manage uncertainties better. It also enhances the enterprise’s value in the three ways listed below.

1. Creates sustainable competitive advantage.

2. Optimizes risk management cost.

3. Improves business performance.

The end result is a more robust risk management process.

You must bear in mind that ERM is a journey, not a destination. It represents a sea change in organizational attitude and behavior. Like any other important change, the adoption of ERM is basically a process of building awareness, implementing and ultimately driving ownership throughout the organization. What makes it all the more challenging is that in any organization, individual perspectives about risk will differ.

Therefore, consider the following while implementing Enterprise Risk Management:

• Set objectives bearing in mind your company’s capabilities. For example, are there any cultural issues that might come in the way of enterprise-wide implementation?

• Develop an ERM plan and set priorities for implementation. Discuss the plan with your team members and seek their opinion.

• Delegate responsibilities for the role of designing, building and monitoring the implementation process.

• Integrate the risk management process with your business plan.

Last but not least, be sure to factor in future goals and capabilities for managing critical risks.

Enterprise Risk Management is not only about compliance and control; it is more about strategic risk-taking and building an effective organization. If implemented properly, it can help your organization follow growth opportunities with greater speed, skill and confidence. Books like “Enterprise Risk Management: From Incentives to Controls” and “Simple Tools and Techniques for Enterprise Risk Management” from might come in handy while implementing ERM.