What Is An Enterprise Risk Management Program?
Running a company is quite overwhelming, no matter what stage you are at.
It’s an undeniable fact that all these years, companies around the world have been dealing with risks in a very reactive manner. Companies only react to risks when they face them, and this is quite an unhealthy practice. In a nutshell, the ad hoc method of dealing with risks can have a negative impact on the business, which is why ERM is quite important.
From maintaining the quality of your products/services to managing the team and marketing campaigns to opting for an ecommerce accelerator, there’s always going to be a lot on your plate. Most importantly, risk management is one of the most important things that companies often overlook, and that ends up costing them a lot.
What IS ERM?
ERM- Enterprise Risk Management is a disciplined approach that helps companies identify, address, and manage any risks that the organization can face. It calls for leadership-level decision-making, and it’s applied in the form of strategies across all departments. The responsibilities of the ERM aren’t based on a single individual or a specific unit of the company; in fact, the company’s leadership here assesses teams from an enterprise perspective and then sets rules and expectations accordingly.
The difference between ERM and the “silo approach” is that in the old risk management methods, each department manages and handled its own risks in its own way. Now the main issue with such an approach is that some risks fall out of the defined silos. Moreover, some risks that are manageable by one department can be catastrophic for the other department. This isn’t the case with ERM. In this framework, communication is encouraged across the entire company, and every single risk is accounted for.
Components Of ERM
There are a total of 8 steps involved in ERM. Starting from;
1-Objective Setting
Before making the decision to accept or reject a risk, you are supposed to assess your business goals first. Management, along with the board of directors, first need to sit down and establish the mission of the company. They need to ensure that the metrics of success align with their risk appetite.
2-Risk Assessment
It goes without saying that the most important and main step of the ERM is risk assessment. This is the point where you have to identify the risk, evaluate it and then prioritize it. The step also includes the likelihood and impact of each risk, and then the company should analyze its security controls accordingly.
3-Risk Response
Now that you know about the risk that can affect your organization, you have to align your objectives and your responses. Here you have the option of choosing a strategy where you avoid, reduce, share or accept a particular risk.
4-Internal Business Environment
The culture of your company and the overall environment will impact the way your employees respond to risks. There needs to be a proper and healthy risk-aware culture in your company, and that’s where the leaders take action. It is the responsibility of the leader to make sure that critical risks aren’t being overlooked by the employees and by the management of the company too.
5-Event Identification
The next step is to identify if there’s an event that can prevent you from meeting your business goals and business objectives. Whether it's an internal event or an external one, you are supposed to classify them as either opportunities or risks, and then you should align them with your business strategies.
6-Control Activities
Both the event identification process and the risk response process will create robust controls that include roles, responsibilities, and, of course, policies. You also need to maintain some checks and balances here in order to implement a response quickly and efficiently.
7-Communication And Information
To improve the awareness beyond compliance terms and leadership, you need to communicate with your employees and train them about risks. The best way to reduce the risk exposure of any organization is to involve the employees, as they can help you make better decisions when they are aware of potential risks.
8-Monitoring
You are supposed to monitor ERM continuously through internal and external audits. This will help you stay on top of the risk landscape that’s constantly evolving.
The Importance Of Enterprise Risk Management
Businesses have now realized that their world is constantly changing and that, of course, will impact the business fundamentals. This is where and why Enterprise Risk Management becomes important. Even if it’s the amazon seller aggregators, ERM will still be important as it helps in securing a company’s place and it also ensures successful operations in the future.
ERM is all about preparing your company for any future risks and ensuring that those risks won’t affect the business in the long run. It’s a set rule here that if you want to run a successful business, you first need to be aware of any risks that can come along your way. When you are prepared and have the right strategies to deal with risks on time, you won’t have to worry about any chaotic damages.
Conclusion
The first and foremost step to implementing any enterprise risk management solution is to understand and then create a strategy for your organization. ERM is now more of a priority for companies and organizations, and it’s all because of the constantly changing business world. With the implementation of ERM strategies and proper employee training, companies can deal with the changing business climate in a better and more efficient way. This ultimately can create a better and more aware working environment which exactly is the need of the hour. In simpler words, to prevent any turbulence or long-term issues, you have to protect your company within ERM. Businesses opting for this solution are doing way better than those overlooking the importance of risk management. So if you want to succeed and if you want your company to grow, then you first need to prepare yourself and learn to face risks without any hassle.