A Proactive Approach to Enterprise Risk Management
Jon Siegler | June 15, 2018
Companies of all sizes and across virtually all industries are beginning to see the necessity of having an enterprise risk management (ERM) program that is comprehensive, organization-wide, and integrated within strategic planning efforts. A great ERM program not only helps organizations identify and remediate risk, but also helps them achieve strategic objectives. However, many companies are finding today that a well-integrated ERM program requires more than cobbled together spreadsheets and hundreds of one-off emails to be successful.
The current state of enterprise risk management has left executives feeling the pressure to provide better reporting and more accurate data. Boards are requiring more visibility and transparency into the organization. And everyone is feeling like their current process isn’t robust or mature enough to implement as a strategic planning tool.
In this post, we’ll look at the steps required to implement a proactive ERM program, the benefits seen across an organization once risk is handled proactively, and how to select an ERM tool that is robust and mature enough to address the issues organizations are facing with regards to ERM.
Proactively Managing Risk
Business leaders are tasked with managing an organization’s risk through an ever-changing environment of political, economic, and technological shifts and advancements which “creates a highly complex portfolio of potential risks that, if unmanaged, can cripple, if not destroy, an organization’s business model and brand.”
Thoughtful business leaders and board members are recognizing the increasing complexities of mitigating potential risks as they attempt to meet the strategic goals and objectives of their organization. The most forward thinking leaders have begun to proactively manage potential risks “by strengthening their organizations processes surrounding the identification, assessment, management, and monitoring of those risks most likely to impact – both positively and negatively – the entity’s strategic success.”
Ways to Develop a Proactive and Strategic ERM Program
1. Be honest about the state of your organization’s risk management capabilities.
Many organizations report being unsatisfied with their current ERM tool. Only one-third of organizations surveyed described their ERM tool as robust or mature. It's pivotal for an organization’s leaders to determine if their current risk management system is capable of protecting against emerging risks.
2. Connect risk management and strategic planning.
Board Members and Executives need to consider how they can integrate their risk management processes with their strategic planning efforts. Combining these efforts will allow leaders to see the strategic value and power of implementing better intelligence concerning potential risks.
3. Consistently report potential risks to the board.
Almost 60% of organizations have some sort of reporting to their board annually, but only 43% of those organizations maintain risk inventories at the enterprise level. Without a consistent risk inventory, the annual report is lacking critical information for ERM planning and alignment.
4. Expand management dashboards to include risk indicators.
60% of organizations surveyed reported that the volume and complexities of risks have increased significantly in the past 5 years, while only 30% are satisfied with their current risk reporting. Boards and executive teams should look into tools that provide robust dashboards that are focused on emerging risks.
5. Incentivize management to invest in risk management.
Two-thirds of the organizations surveyed stated, “a number of external parties are applying pressure on senior executives to provide more information about risks affecting the organization.” Usually, it’s the board of directors that are requesting more senior management involvement, but with risk management maturity increasing so slowly there is a divide between what the boards are looking for and what the management can provide. The report advises boards of directors to place more responsibility on executive management for risk management responsibilities through incentive compensation.
6. Provide education and training on the value of robust, proactive risk management.
Currently, there is little to no training on the value that risk management brings to an organization. There are “perceptions that investing in risk management is a competing priority relative to other organizational initiatives, or perceptions that managing risks lacks value may signal a lack of understanding about how effective risk oversight may actually improve the organization’s ability to proactively and resiliently navigate emerging risks.” Business leaders needs to begin to make investments in tools and education in order to critically implement a proactive ERM solution that will positively impact business goals and objectives.
The Impact of a Proactive ERM Strategy
When an organization places risk management at the core of their strategic planning, it allows the organization as a whole to proactively prepare for potential risks rather than reactively. A report by the AACU UK titled, Innovation and ERM: Partners in Managing the Waves of Disruption found that there are three main impacts on an organization once a proactive and robust ERM solution is in place.
Anticipates and interprets disruption- a clear ERM strategy with short, medium and long term scenarios allows an organization to easily predict and respond to potential risks.
Rethinks strategy-with risk management at the core of strategic planning and an understanding of how risk can impact strategy, organizations can create and develop key assets that combat external risks.
Innovates business models-when preparing for risks, business will innovate business models.
LogicGate has the Solution
LogicGate’s Enterprise Risk Management platform is a robust solution that allows you to custom fit your organization’s strategic planning objectives while providing accurate data that identifies, asses, and monitors potential risks. The analytics provided by the platform allows management to drill into dashboards, create custom reports, and generate heat maps that deliver in-depth and real-time data on ERM activities across the enterprise. LogicGate’s custom dashboard reports can satisfy virtually every boards need for accurate data. Utilizing LogicGate’s ERM platform will allow your organization to proactively prepare for potential risks.
For more on Enterprise Risk Management, check out LogicGate's eBook below on How to Build Organizational Support for ERM.