5 Top Tier Enterprise Risk Management Examples
5 Examples of Enterprise Risk Management
Enterprise risk management allows an organization to pinpoint risk and identify potential loss before it occurs. An effective business strategy will optimize a risk response and improve decision-making within each sector of an organization.
Since the 2008 stock market crash, companies across America consider enterprise risk a serious matter. The failure to calculate one's risk appetite and manage risk can lead to litigation, a ruined reputation, and a reduction in assets.
However, it's not smart to avoid all risks. Successful companies utilize an ERM framework to approach risk management. This helps them to identify which risks to capitalize on. This allows them to increase profits, gain a competitive edge, and strengthen their brand. So how does a company know which risks to take and which not to? The top examples and best practices of an effective ERM program can help business leaders understand how risk management works. These include
Impact of a Critical Risk Event:
1. Resiliency as Part of Enterprise Risk Management
An organization utilizes resiliency to reduce and/or avoid larger quantities of threats. Resilience is the ability to create a health company that handles difficulties when they arise. Examples of potential threats include operational risk, financial risk, natural disasters, or a sudden economic downturn.
A company culture that takes risk seriously at all times is better equipped to mitigate a disruption when it occurs. For example, a business located in an area where hurricanes are common may invest in impact-resistant windows/doors, shutters, and other infrastructure. This approach may also reduce compliance risk and improve a company's brand.
2. Compliance in Enterprise Risk Management
An ERM process should always prioritize compliance as part of its overall risk management plan. Compliance is one of the key risk concerns that most businesses are weary of. Congress and regulatory regimes increase the number of regulations for different industries every year.
Small businesses often have a harder time with compliance because they don't have the resources and expertise available to assist. Successful businesses understand that compliance is a basic part of enterprise governance. A good ERM software solution can help both small and large enterprises ensure compliance, decrease costs, and add to the bottom line.
3. Opportunity and Enterprise Risk Management
While many individuals think of risk as inherently bad, it's imperative to take certain risks. To not take any risk results in a loss to the competition, a decrease in revenue, and a missed opportunity. Every risk management strategy and ERM program should include opportunity within its set of strategies. Each business should first ask itself the following questions -
- How should the organization approach opportunity?
- What is our risk appetite?
- What do risk managers need to do to optimize the health of the organization?
- What risks do we need to take to meet our business goals?
An effective organization has a risk culture that eliminates bad risk and has the assets available to take good opportunities. This will increase revenue, optimize a brand, and build stronger relationships with customers.
How to Tell Whether it is an Opportunity or a Risk:
4. Authority and Risk Managers
Risk mitigation is complex and challenging. An organization needs the authority of effective risk managers to create a good strategy. More companies employ a Chief Risk Officer to assess risk appetite, create a risk management framework, and mitigate business risk.
This individual can work with other executives to create a risk culture that values risk mitigation. It's critical to incorporate the proper training and document all risk policies so everyone knows which rules to follow.
Smaller companies may not have the same resources to hire a risk officer. They can invest in third-party ERM specialists and focus on data protection, as cybersecurity is the highest-level risk they face.
5. Risk Integration and Enterprise Risk Management
Effective operational risk management integrates risk mitigation into each department of an organization. If only a couple of high-level officials know about managing risk, it's likely that an employee will make a mistake.
Human error is responsible for the vast majority of risk-related problems. It's critical to train workers on compliance, cybersecurity awareness, and other techniques to manage risks. If everyone takes a management framework seriously, there will be a more effective ERM.
Tips to Create a Risk Integration Strategy:
Key Takeaways of Enterprise Risk Management Examples
Here are the top examples and best practices of strategic risk management
- Resiliency is the ability of an organization to respond to strategic risks and manage natural disasters as they occur. It's critical to put protective measures in place before a risk becomes a more serious problem. This enables a company to be resilient.
- A compliance management strategy focuses on compliance and the regulatory regime. Organizations face compliance problems and cybersecurity threats more than any other risk. To mitigate these issues, businesses can use an effective management plan and an ERM initiative/ software.
- Risk managers should manage the health of an organization so they can seize on opportunities. This will increase profits and help to maintain a competitive edge. An organization also needs to put people with expertise and authority in charge of a strategic risk policy.
- An organization should integrate risk mitigation within each department. The proper training and documentation will eliminate human error and improve the company's risk appetite.