Anyone who has experience in risk management will agree with Stanford professor Scott Sagan’s statement that “Things that have never happened before happen all of the time.” Planning for the unknown is inherently uncertain. The high-water line on a Venice canal is only the highest until the next historic flood, just like the largest cyber attack is only the largest until the next bigger one.
Luckily for risk managers and corporate executives, there are tools to help minimize uncertainty. Enterprise risk management (ERM) is one such tool that business leaders in nearly every industry can leverage to better identify, understand and mitigate risk. Conversely, it can help propel an organization forward by embracing the rights risks at the right moments.
ERM is defined as a holistic process of scanning for and identifying, assessing, managing or otherwise treating internal and external risks. What separates ERM from traditional risk management is the emphasis placed on creating a consistent, structured and continuous process that produces a 360-degree view of the risks facing an organization and sharing that view with complete transparency across the entire organization.
This process pushes traditional risk management a step further by approaching risk in a way that accounts for the organization’s strategic business goals. With an intimate understanding of all areas of risk at the enterprise level, business leaders can most effectively allocate their resources in ways that address both insurable and non-insurable risks while aligning with underlying business objectives.
Implementing an ERM process can be a sizeable undertaking, but doesn’t have to be. When properly employed, it promotes transparency of risks between senior staff and board members in ways never before possible. In doing so, businesses can position themselves to thrive today and be prepared to capitalize on opportunities and avoid pitfalls in the future.
In over 20 years of helping implement ERM programs into a wide range of businesses, I’ve identified a number of benefits that nearly every organization can reap through the process. Here are just four of the undeniable benefits of ERM:
1.) Bringing intentionality to your treatment of risk
The number one benefit of an ERM program is its ability to create a systematic and intentional process to identifying and addressing risk. Too often risk management is thought of as an ad-hoc exercise where liabilities are addressed as they are discovered.
ERM provides a repeatable process that can be implemented across the organization to continually monitor and identify areas of liability or opportunity. Most importantly, it introduces the opportunity for business leaders to best address these risks. The result is an ongoing process for continuous improvement and optimization of the organizations’ risk management efforts.
2.) Embedding risk considerations into operational decision making
Risk management assessments aren’t very effective unless they are communicated up and down the organization in ways that allow employees to implement them. When risk management is conducted at the enterprise level, it goes a long way in producing a risk-oriented culture across the entire organization. When managers and decision makers on the front lines can be consulted on and informed of risks facing their departments, they can simply and easily implement risk management best practices into their daily operations.
3.) Breaking down silos to build transparency
Almost all organizations that experience organic growth will naturally at some point end up with silos separating different departments within the larger enterprise. Various operating and staffing units begin working in their own ways based on their own individual mandates and objectives. This can lead to risk management issues when clear lines of communication are missing between silos.
When risk management is implemented at the enterprise level, ERM breaks down these communication barriers and builds transparency into risk management efforts by taking a high-level, holistic approach that is carried out throughout the entire organization.
4.) Comprehensively managing risk with creative solutions
When implemented correctly, ERM programs are able to help business leaders find creative solutions to various areas of risk facing their organization. For example, these solutions can include alternatives to traditional insurance programs, such as captive insurance, that allow companies to gain greater stake in their insurance costs and risk management programs.
Alternative finance structures can provide organizations with the opportunity to add to their bottom lines when claims are low, while staying protected when the unfortunate occurs. With an enterprise-level view of risk management and insurance needs, it becomes much clearer for decision makers on when and how to implement creative solutions.
Leveraging ERM Expertise
While the benefits of ERM are clear, many business leaders are hesitant to dive into an ERM program because it can be difficult to know where to start. Partnering with a broker experienced in implementing ERM programs can help.
Conner Strong & Buckelew’s ERM experts are able to provide a strategic hand, whether your organization is looking for a consultant to optimize a specific element of your existing ERM process or a full-fledged partner to help you build a program from the ground up.
With new risks evolving by the day, risk management professionals must think holistically, strategically and at the highest level to protect their organizations, starting with enterprise risk management.
VP, Enterprise Risk Management Practice Leader, Senior Account Executive