Enterprise risk management (also known as ERM) is a critical component of any good business strategy — a fact that an increasing number of business leaders have acknowledged on the heels of the COVID-19 pandemic. The pandemic brought numerous risks, threats, and vulnerabilities into sharp focus, prompting many companies to shift from a reactive approach to a proactive stance on enterprise risk management. But the process of implementing ERM-friendly measures can be very involved and multifaceted, leaving many uncertain about what to expect during the ERM implementation process.
What is Enterprise Risk Management?
To understand the implementation process, it’s important that you have a solid understanding of what enterprise risk management actually entails. This form of risk management focuses on eliminating or minimizing the threats and vulnerabilities that confront larger companies and corporations.
Some industries and business models — think health care, insurance, banking, and lending — involve an inherent and unavoidable element of risk. In these cases, threats, risks, and vulnerabilities can be minimized and controlled, but never fully eliminated. In other cases, complete risk mitigation and full threat neutralization is a very reasonable expectations.
Enterprise-level risks do differ somewhat from what you may confront as a startup, small business or mid-sized company. Therefore, risk management strategy is something that must be revisited as a company grows and up-scales.
The Five Steps of the Enterprise Risk Management Implementation Process
The enterprise risk management implementation process involves five basic steps or phases. They are as follows.
Identifying Risks and Vulnerabilities
The first step is to evaluate your company and the risks, threats, and vulnerabilities that it is confronting. It is important that you identify existing risks and potential threats. To ensure that all threats and areas of vulnerability are successfully identified, you should pull in leaders from the company’s various departments and divisions to establish an enterprise risk management task force. These individuals will have more granular insights that may elude business leaders who are usually more focused on the broader picture.
You must analyze the dynamics surrounding the threats and vulnerabilities to gain a full understanding of how and why these conditions exist. Why do these vulnerabilities exist? What conditions or circumstances allowed a risk to arise? Can the risk be fully eliminated and mitigated? Or is risk minimization a more reasonable objective? These are a few of the questions you should consider as you’re analyzing your company’s risk management landscape.
Prioritizing Risks and Vulnerabilities
Even the largest corporation may have limited resources available to tackle enterprise risk management mitigation-related tasks. Therefore, it’s important that you prioritize your ERM threats and vulnerabilities so that you can determine the order in which you will address these issues. As you rank risks, you must consider the nature and severity of a risk’s potential consequences. Another key consideration is the difficulty level and complexity of mitigating a particular risk.
Launching Your Risk Mitigation Response
Once you’ve prioritized risks, threats, and vulnerabilities, it’s time to launch your risk mitigation efforts. Risk management software platforms offer useful tool sets with project management-type features that allow you to plan a response, collaborate and track progress. These risk management software platforms also feature dashboards with helpful data visualizations and metrics that allow for continued monitoring and ERM oversight.
Monitoring and Re-Evaluating the ERM Landscape
Risk management is never a “one-and-done” sort of project. ERM is a continual process that requires consistent monitoring and periodic re-evaluation of your risk mitigation efforts. Threats and vulnerabilities are extremely dynamic, especially in industries such as the financial sector and the healthcare space. Therefore, it is prudent to set up ERM monitoring using a risk management software platform, in addition to scheduling periodic reviews for your enterprise risk management task force.
Using an Enterprise Risk Management Framework in Your Risk Mitigation Efforts
The ERM Implementation process may also include the use of a framework, which serves to guide a company’s risk mitigation efforts. A number of different frameworks exist and there is no one-size-fits-all solution. More basic frameworks may include just four components, such as:
- Policies, protocols, and governance structure;
- Risk assessment and prioritization;
- Risk management and mitigation; and
- Risk reporting and monitoring.
More comprehensive ERM frameworks have a few additional components — eight in the case of the COSO framework.
- Internal environment evaluation
- Establishing objectives
- Event identification
- Risk assessment and evaluation
- Risk response
- Risk control tasks
- Information and communication
- Risk monitoring
These eight components of the ERM framework are designed to guide a company’s risk mitigation efforts. This, in turn, determines what the ERM implementation process will look like for a business.
Other Expectations for the ERM Implementation Process
The ERM implementation process may impact the entire organization in some way, shape or form. For this reason, it is essential that business leaders take the time to inform staff about the nature of the company’s enterprise risk management efforts and what these tasks will entail. It’s important that your employees know what to expect, especially if they will be directly affected by the ERM implementation process. In fact, some risk mitigation efforts require changes to processes and policies, making employee training and education critical to success.
Leveraging the Right Technology During the ERM Implementation Process
The right enterprise risk management software platform can make for a very efficient ERM implementation process. In fact, ERM software is essential for the successful long-term monitoring of vulnerabilities and risk factors. These platforms feature tools with news feeds and alerts that will keep you informed on new threats and risks.
The risk management landscape is extremely dynamic. It’s constantly evolving, especially when it comes to cybercrime and cybersecurity. Cybercriminals are continually discovering new vulnerabilities that they can exploit. New technologies represent new opportunities for cybercrime. And this says nothing of the vulnerabilities that exist within an organization or as a direct result of interactions with contractors, vendors, and other third parties.
Effective risk management is a bit like a juggling act, as companies are tasked with keeping multiple balls in the air. A well-architected risk management software platform makes this much easier, as you’ll have the tools you need to stay organized with your ERM implementation tasks. Monitoring and alerts can be automated too, simplifying and streamlining your efforts to stay proactive rather than reactive.
Enterprise risk management needs differ from what you would see with a smaller business. As such, it can be difficult to find a risk management software platform with everything that a large enterprise needs to succeed. The out-of-the-box solutions are usually designed to accommodate the needs of an average company — SMBs. This prompts many companies to pursue the development of a custom ERM software platform.
Risk management is one of our specialties here at iTech. We have extensive experience developing innovative enterprise software systems for ERM and beyond. We create purpose-built software solutions by collaborating with our clients and gaining deep insights into the organization’s challenges, strategic objectives, and strengths. Then, iTech’s world-class development team will get to work developing the ideal Digital Transformation solution for your business. We invite you to reach out to the iTech team today to discuss your company’s enterprise risk management challenges, goals, and strategies for the future.