Enterprise risk management: The basics
Enterprise risk management helps businesses weigh up their risks, manage stressful situations and above all, stay prepared.
All businesses face risks. In fact, it’s these very risks that turn some businesses into huge successes. However, not all risks have positive outcomes.
That’s where ERM comes in to help manage risks that could get out of hand.
What is ERM?
Enterprise risk management (ERM) is a firm-wide strategy to help businesses identify and prepare for hazards. It helps companies plan responses to internal and external risks, ranging from finance and operations, to customers and market conditions. Its overall goals are to reduce risks, protect businesses, and manage uncertainty.
By having a solid plan detailing how each possible risk can be handled, ERM helps businesses make better decisions. It provides direction for when things go wrong, alleviating chaos by helping companies figure out their next step.
To understand the principle of ERM, think of the detrimental risks caused by COVID-19. Many businesses didn’t have risk management in place for potential pandemics, and this lack of planning played a part in their demise.
Hence, the pandemic has taught us that it’s beneficial for many businesses to have a risk management plan in place for extenuating circumstances moving forward.
What does ERM involve?
There are many aspects involved in ERM. These include:
- Assessing any risks that your business may face.
- Determining methods for managing these risks if they are to occur.
- Making sure you always have a back-up plan. When it comes to making decisions, ensure that all risks are identified, and that each risk has a management plan.
- Sharing the principles of risk management company wide to ensure that everyone is aware of all risks and their associated management strategies.
What benefits does Enterprise Risk Management provide?
ERM provides many benefits to businesses. These include:
Preparation is key. If businesses are more aware of the risks that they could potentially face, they will be better equipped to combat these risks. Without ERM, many businesses fail to respond effectively to risks.
Success at achieving their goals
Some risks have great rewards. If your business has an objective that is linked to a risk, having a sound management plan will give you more security if you do choose to take that risk.
With a solid back-up plan, businesses can take risks that may be pivotal for achieving their goals. Risk appetite is an important part of ERM, and companies with good risk management plans can increase their appetite for risk, and ultimately their appetite for success.
Preparing your workforce for potential risks reduces the need to create strategies on the spot if a risk were to occur. This means that in the face of uncertainty, your entire team will be able to tackle the issue head on.
ERM also helps businesses comply with legislation, as it forces companies to consider internal and external risk factors. If businesses are made to assess whether their operations pose legislative risks, they are less likely to do anything that will put them in legal danger.
Why is the future of Enterprise Risk Management online?
Due to business becoming increasingly digital, the future of ERM is online. This makes ERM more efficient and effective.
Here are some benefits of having an online risk management system:
- Moving your risk management strategies online will make them easier to access for all employees. No matter what device they are using, anyone from your business will be able to refer to your risk management strategy at the click of a button.
- Having an online risk management system will keep your information safe and secure.
- An online system will keep all of your risk information in one place.
- If your risk management plan is online, then it is easily editable. The world is constantly changing, making the ability to easily edit documents super important.
No matter what type of business you run, you will inevitably encounter risks. Risks are a vital ingredient for success, so having an all-encompassing risk management strategy in place is a must for modern day businesses.
Enterprise Risk Management helps businesses navigate risks in a productive way, allowing companies to run effectively and become more successful. It’s also important from a brand reputation and marketing perspective – having solid risk strategies can place you ahead of your competition.
Do you want to effectively manage risks in your workplace? Click here to book a demo.