There are many ways that ERM can add value to any organisation if implemented correctly. From lowering loss costs to improving decision-making, value can come in many forms when speaking on risk management. A few value-add benefits of ERM implementation include:
Building a risk aware culture
When Enterprise Risk Management methodologies are attached to decision-making processes, uncertainty specific to actions can be identified and treated. This promotes a risk aware culture where everyone in the organisation is mindful of how their actions can impact the organisation overall.
Viewing it as a quasi-butterfly effect if you will, small actions can lead to catastrophic failures if allowed to organically grow within an organisation. A risk aware culture can bring risk to the ears and eyes of leadership who can allocate the needed resources to control uncertainty’s impact on meeting objectives, regardless of its hierarchical existence.
Improving Decision Quality
When Enterprise Risk Management is implemented it leads to improved decision quality at all levels of the organisation. When employees and leaders make decisions with risk in mind, they lower the risks of adverse impacts to the organisation, a value-add process no one can argue with. Decision trees, Monte Carlo simulations, and quantitative analysis can improve the quality of strategic decisions leading to greater success in achieving objectives and decreasing uncertainties impact on actions taken in pursuit of said objectives.
Reduce Costs
An obvious benefit of Enterprise Risk Management implementation is the lowering of costs for the organisation. Establishing a risk aware culture across the enterprise helps everyone identify, assess, and act accordingly when risks are present. When employees have risk on their minds, they make smarter decisions, look out for the greater good of the organisation, and remove cognitive biases that can be toxic in making quality decisions.
Costs that are not allocated to fixing problems arising from poor management of risks can be allocated to helping the company meet strategic objectives. It goes much beyond simply reducing the total costs of risks for the organisation. Risk practitioners can have a distance to go in achieving acceptance of Enterprise Risk Management within their own organisations, based on the data presented.
However, there is still time to make the required adjustments to corporate strategy to rise to the challenges of a more globalised and complex business environment.
Adding value is the key to attaining Enterprise Risk Management implementation at the highest levels of the organisation. Without it adding value, risk management is nothing more than a cost centre that is brushed off as anything more than a check the box department.
The challenge is here, now is the time for the risk leaders of the world to step up to the plate and create positive change.
In Summary
If Enterprise Risk Management as a global discipline is to survive it must create engagement to creating and protecting value for organisations. New risks are emerging almost daily, due to the rapid changes in technology, global market conditions, consumer preferences, and significantly by the COVID-19 pandemic. Risk practitioners need to show how Enterprise Risk Management is the only way to properly manage risks from an enterprise-wide viewpoint. Mission control for risk management is the ultimate Enterprise Risk Management goal. It is time to take risk management from a compliance check box exercise to a decision making resource that helps businesses reach their objectives while keeping risks at a minimal level.
