Enterprise Risk Management
Enterprise Risk Management - Archer IRM
Archer provides a clear, consolidated view of risk across the organization by aggregating disparate risk information in one central solution.
Risk is a part of life that you can’t avoid. For an organization to grow and develop in every aspect, it has to take some risks. Risk management comes in when the organization can identify and assess these risks to achieve its objectives.
Enterprise risk management is the process of identifying, assessing, and mitigating any event that poses a risk to an organization achieving its objectives or losing opportunities that can boost its competitive advantage.
ERM can control and understand the level of risks an organization takes when pursuing a new business strategy; it is its enterprise risk competence.
The main aim of an enterprise risk management program is to understand an organization’s risk tolerance, how it is categorized, and how it can be quantified. When this information is known, it is easy to implement solutions for said risks
Types of Business Risks
There are four significant types of business risks, and they are:
Strategic Risks: These are the risks that come about as a result of and can significantly affect strategic business decisions.
Compliance Risks: These types of risks arise when organization rules and regulations are not followed. It attracts financial and legal losses.
Financial Risks: These types of risks are related to monetary transactions. They include financial consequences, and if not prevented or managed, they can lead to an organization going bankrupt.
Operational Risks: These are the risks that affect the organization materially. These risks are enhanced when the staff of an organization is not well trained in their respective fields.
Processes Involved in Enterprise Risk Management
Although different organizations have different ways of managing risks, ERM follows some basic processes where it assesses the risks and strategies critically. Proper assessment and handling of these risks will enhance the organization’s financial security. Below are the processes involved in enterprise risk management:
Setting the Objectives. Make sure you understand the objectives and aims of the organization. Also, familiarize yourself with the threats associated with the business and strategies.
Identifying the Risks. Get a thorough and precise profile of all the risks that can negatively impact the organization. Always know the significant risks so that you can prioritize them over the minor ones.
Assessing the Risks. Every identified risk is analyzed thoroughly. This analysis is done so that you can get the likelihood of that risk-taking place.
Risk Response. Study all the various risk response strategies available and pick ones that are the most appropriate for identified risks. Identified risks are aligned with managements’ risk tolerance.
Proper Monitoring and Communication. Essential data and business information are monitored and communicated by the approved bodies across all departmental levels in the organization.
Benefits of Enterprise Risk Management
There are so many advantages of using ERM, and here are some:
Improved Risk Reporting: A practical ERM framework follows a computerized system for reporting. This system permits information to be updated and streamlined across every level in the department.
User-Friendly and Scalable: An ERM system is easy to navigate, and it reduces the complexities in the organization, enabling an efficiently designed work system.
It is also easy to add new features and functionalities to the existing system.
Better Data Quality: When using an ERM system, the quality of data and information gotten is more enhanced.
Reduced Operation Costs: The ERM system helps to reduce operational costs because resources will be used optimally.
More essential innovations are created to help optimize organizations’ resources.
Improved Resilience: A sound ERM system helps to improve both business resilience and operational resiliency. Although inflicts a drastic reduction in risk, organizations will be able to bounce quickly if any disaster does strike.
Improved Customer Relationship Management: ERM boosts the relationship with customers because the organization’s business processes are improved. The better the business processes get, the more satisfied customers get. And this can lead to referrals which means that your customer base will be increasing.
ERM Risk Response Strategies
When burdened with a risk, you can choose to most appropriate response for it. There are five popular risk response strategies:
Reducing the Risks. This is the reduction of the severity of losses.
Picking an Alternative Action. This is when organizations consider other logical and safe means to reduce risks.
Insuring or Sharing. This is when some risks are transferred to a third-parties.
Avoiding the Risks. This is when threats that could negatively impact the organization are eliminated. This strategy prevents the occurrence of some threats.
Accepting the Risks. This strategy deals with recognizing the risks that have been identified and the readiness to accept any outcome they bring.
For an organization to run successfully with minimum risks, the management must be very conversant with enterprise risk management. If you have an issue with enterprise risk management or you are unclear of what steps to take, you should consult with experts from Archer today.
Archer is the organization that helps businesses manage multiple dimensions of risks by providing holistic, integrated risk management and driving accountability across internal functions and third-party business associates.
For any inquiry you might have about ERM, we are your solution.
FAQs
What is ERM?
ERM stands for Enterprise Risk Management. ERM is the process of identifying, assessing, and mitigating any event that poses a risk to an organization achieving its objectives or losing opportunities that can boost its competitive advantage.
What are the main types of business risks enterprise risk management addresses?
Strategic risk
Financial risk
Compliance risk
Operational risk