Enterprise risk management

Implementing Enterprise Risk Management to Protect and Create Value

Enterprise risk management represents a holistic approach to governing risks organisation-wide. Instead of siloed management within functions, enterprise risk management provides integrated visibility enabling trade-offs and interconnections to be managed at the executive and board level. Companies implementing robust enterprise risk management reap benefits including smoother operations, higher performance, informed growth and greater resilience. This article provides guidance for business leaders and directors looking to elevate enterprise risk management.

Secure Board and Executive Commitment

Gaining consistent senior leadership commitment ensures enterprise risk management receives sustained focus across the organisation. The board plays a vital role setting risk appetite and expectations for risk-aware culture. Management implements integrated risk infrastructure like committees, reporting and organisational accountabilities recommended by board guidance. Visible engagement by the CEO and executives signals importance.

Adopt a Risk Management Framework

A codified risk management framework documents the policies, procedures, governance oversight and reporting methodologies comprising the integrated program. Frameworks based on established standards like ISO 31000 adapt recognised risk practices to the organisation’s needs. The framework communicates responsibilities at all levels for risk identification, analysis, control and monitoring.

Establish Central Risk Oversight

To break down functional silos, oversight of top organisational risks needs consolidation under a central risk committee and senior executive like a Chief Risk Officer (CRO). The risk committee reviews cross-cutting risks beyond one department’s purview and assesses interconnections. The CRO collaborates across units to achieve risk reporting consistency. Central oversight overcomes narrow perspectives.

Build a Risk-Aware Culture

Formal risk processes only work if the organisational culture empowers people to speak openly about risks without blamed. Leaders at all levels influence culture through role modeling transparency, accountability and learning from near misses. Training ensures everyone understands expected risk-aware behaviors. People identify risks more readily when the culture supports candor.

What Is a 'Portfolio View' of Risks?

Instead of assessing risks in isolation, enterprise risk management evaluates interrelationships between exposures across the organisation to discern offsets or concentered impacts. A correlation matrix maps connections, while techniques like Monte Carlo simulations model risk interactions. Holistic modeling quantifies potential losses more realistically.

How Does an Enterprise Leverage Technology Infrastructure in Risk Mangement?

Specialised governance and risk management information systems centralised data, automate processes like risk scoring, deliver real-time dashboards, and apply predictive analytics. Shared infrastructure provides enterprise-wide transparency. Security protects confidential data access. Systems render risk management efficient and timely.

How to Embed Risk in Decision Making

The most effective enterprise risk management integrates both upwards reporting and downwards decision support. Templates, guidance and systems enable managers to identify risks, controls and responses associated with key decisions, which are then validated by oversight functions. This bakes prudent risk management into workflows organisation-wide.

External Risk Expertise

While business leaders retain accountability, external risk management expertise from advisory firms provides an objective perspective identifying potential blind spots. External expertise boosts maturity to elevate risk practices. Independent assurance reviews also assess program effectiveness against standards and peers.

Monitor Risk Metrics and Events

Effective enterprise risk management requires not just static assessments, but also dynamic monitoring metrics that may signal changes. Key risk indicators tracked over time coupled with monitoring of loss and near miss event reports provide visibility between formal reviews. Emerging risks are flagged early rather than waiting for periodic updates.

Sustain Focus Beyond Crises

Crises naturally escalate risk oversight, but diligent boards and executives maintain priority once threats fade. Continuity plans for leaders and risk teams hedge against loss of knowledge. Ongoing enhancements embed stronger risk management into operations. Sustained commitment prevents complacency.

Report Risk Transparently

Confidence flows from transparency. External risk reporting provides assurances to investors and stakeholders that material risks are prudently governed. Disclosures outline key risks, risk management maturity against standards, and oversight accountabilities. Reasonable transparency demonstrates accountability.

Ensure Full Scope Coverage

Holistic coverage prevents blind spots. The enterprise risk management assessment scope includes strategic risks, operational risks, financial risks, compliance exposures, technological risks, reputational risks and environmental/social responsibilities. Enterprise risk management integrates insights across these diverse yet interconnected categories.

Continually Evolve Practices

Regular assessments benchmark existing risk management practices against leading guidance like ISO 31000 and emerging innovations. New threats, techniques and technologies warrant periodic upgrading of enterprise risk management capabilities. External assurance reviews prevent insular perspectives.The integrated visibility and strategic risk insights produced by robust enterprise risk management enables organisations to pursue objectives confidently. Enterprise risk management changes the C-suite and boardroom dialogue from siloed exposures to holistic oversight revealing opportunities to create sustainable value.