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Importance of Enterprise Risk Management

knowing enterprise risk management and it's rules. Similarly, it's functions

Risk Mangement

Importance of Enterprise Risk Management

Enterprise Risk Management (ERM) is the process of managing all the risks and minimize them while seizing all the possible opportunities which support in the success of the business. You can say it the framework or the core of Risk Management in Business. It consists of all the fundamental business activities. A single risk that is not considered is the danger ahead! You cannot afford to have a substandard risk management plan. Smart people have more plans before exit strategies. You need to have the best alternative risk management strategies for your startup!

Before we start the analysis I suggest you to read this: Perform risk analysis in your business

Enterprise risk management tools:

A good Enterprise Risk Management Program analyze the data from the past with the help of audit and business line self-assessment. The next thing is calculating risk factor in the data of current situation of the business. The current situation may include current activities, capabilities and limitations, usually expressed through financials and monitored through various metrics. After the complete analysis of past and present, your risk management program must be able to predict about the future. What should be the focus for future analysis? Well, it should be strategy and goals and ability to mitigate potential pitfalls which includes both catastrophic failures and missed opportunities.

What are Goals of Risk Management Plan?

The first and foremost step is to understand an organization holistically, and identify key drivers and contributors to strategic goals, as expressed by executive management. This is the most important task in which executive body needs all the possible affecting factors.  Depending on the organization, the factors may be qualitative or quantitative. After the risk is calculated, there is a process of risk assessment reporting and the executive body takes decisions based on these reports.
In small business and organizations with good, regular communication, ERM is merely an aspect of executive management’s job. Everyone share their point of view in the small business. So, in the beginning you need just perfect communication with your team.

Risk Management Factors to consider:

Most of the authors agree on the simplest definition of Enterprise Risk Management which is “simply a framework for risk management across a whole enterprise.” However, there are the so many things to consider when you’re talking about the whole enterprise. Following things are important in the risk management strategies and a perfect enterprise management system should be able to do these things!

  • Ability to Report and Monitor every single process in the organization involving finance and operation.
  • Prioritize and highlight areas with greater risks and report them regularly.
  • To calculate risk under all the environments and their direct and indirect effects.
  • Recognize the interrelated risks and show their combine impact on the business.
  • Should be able to provide a step by step process for risk management.
  • To view the sum of all the effective risk management systems
  • To make sure every decision in the organization include risk management!

For more details about the frameworks and their explanation, you can check out the  Wikipedia Explanation

What you need to care about is the risk analysis and risk management. If you have a small business or a startup which is just in the beginning, you need to focus on the basic risk management and just forget about ERM. But for the organizations with large number of process and machines an ERM is the most important tool! In other words, a large business without ERM is a heavy risk and one must not take this risk. If you are not good at these things, you need to have a consultant or a managing director for the this purpose who is able to take care of all the risk management. So, that’s all about ERM!

 

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