A recent study found that only 36% of organizations use a legitimate enterprise risk management (ERM) system, but more and more companies have recognized its value. The importance of an effective enterprise risk management program has grown in the last few years and it is now becoming a best practice as a means of gaining control of risks in the organization.
Institutions use ERM programs to get a complete overview of the organizational risks in the company. These risks could be strategy-based, financial, or even threats to the operation of the company. An ERM system is used to determine the best ways to mitigate as well as manage the risks.
It is important to take a full overview of risk management processes because it gives upper management a better understanding of the risks and threats to the company. This way, institutions can understand the nature of the risk and come up with ways to mitigate it better.
Here are ten easy steps in which organizations can implement enterprise risk management successfully:
1. Value to the Organization
When organizations implement an enterprise risk management solution, they need to make sure that it adds value to their business. It is difficult to measure the traditional methods of ROI when it comes to an ERM system. This is why a lot of businesses consider these four factors before implementation:
- Shareholder value
- Risk mitigation
- Solo elimination
- Process consolidation
Once the ERM system they have selected meets these categories, they can begin the implementation process. The solution needs to add value to the organization as well, which needs to be determined by the management. The first step to that is understanding what risks the organization needs to protect and how the ERM system will help them in doing so. It also needs to be aligned with the business values of the organization as well as the objectives of the company.
According to a recent study, the top ERM program priorities for a lot of financial institutions when it comes to what they look for in the system are:
- How the system manages to collaborate with both the business functions as well as the risk management function (66%)
- How the system can handle the increase in requirements and expectations (61%)
- How well the ERM system can embed risk culture in the organization (55%)
2. Different Standards of Framework
There are multiple ways of managing risk. They also come with their specific management guidelines and standards. A lot of risk management practices continue to evolve with the changing environment whereas the risk management standards take a more generalized approach and are similar in a lot of ways.
Organizations can use these standards of the framework to adopt into their enterprise risk management system to ensure a seamless implementation. This framework includes the following processes:
- Identifying risks
- Creating a risk appetite or analyzing the risk
- Evaluating the risk
- Implementation of risk management strategy
- Evaluating how the strategy works
- Constantly monitoring to improve processes and management
3. Inventory of Organization’s Activities
Before the implementation of an enterprise risk management solution, institutions need to take into account the processes they already use to mitigate risk. There are going to be processes already in place to prevent and mitigate certain risks to the organization. These risks need to be acknowledged and leveraged with the enterprise risk management system that is to be implemented.
4. Consistent Support
Implementation of an enterprise risk management solution is going to involve a lot of stakeholders because it affects the overall practices and functions in the organization. The stakeholders need to be involved to accelerate the entire implementation process.
To maintain additional organizational support and advocacy, organizations should also look into working with external sources of support. This includes getting involved with people who are insurance brokers, external auditors, or other consultants.
5. Simplifying the Process
Keep the entire enterprise risk management process simple so that all members of the institution can understand it. This will help in making it easy to comprehend and use. To explain the processes, using simple language that everyone can understand would be the best. Complicated jargon would only confuse the members.
Explain the process using graphics to show a clear path to the employees. The important thing to remember here is to focus on how an enterprise risk management solution will help companies achieve their objectives. This should be the highlight instead of the benefits of the ERM system itself. Keep the training program easy to understand as well so that all the members of teams can learn easily.
6. Focus on a Single Goal First
The full scope of enterprise risk management should not be deciphered in the early stages of implementation. The best way to go about understanding how the solution works for a business is by starting small. Organizations should put their focus on achieving one specific goal first. Then they can focus on the objectives of this goal and the risk management processes involved in realizing this goal.
When companies use controlled implementation at the beginning of their ERM system, it helps them understand their problem areas better. It helps team members see what works and what needs to be improved. It also leads to a higher overall commitment by the employees because once this objective is achieved, they have a platform to build on.
7. Start with the Most Important Risks
Along with starting with a single specific goal to achieve, it is also important for organizations to pick a relevant one. The most important business goals are likely to have big risks in place. Team members should start by tackling the company’s risks that could have the most impact on operations.
Once the risks that could have a big impact on the organization have been identified and mitigated or controlled, the value of the ERM system immediately rises. Then the upper management can discuss the risk appetite of the company. This will help them get a better understanding of which risks can actually be contained or avoided and what business goals they would achieve.
8. Delegation of Fixes
Keep team members in charge of ‘fixing’ risks. The person who holds accountability will be in charge of monitoring the risks as well. Someone who understands the business objective and goal of the project should be in charge. This is because they will be the best people to know the kind of risks the project could have.
The person who is in charge of managing the risk can work alongside other team members as well. This will help in creating a network of interconnected risks. Some risks cannot be easily compartmentalized, so this process helps in creating a well-developed blanket for risk management.
9. Progress Reports
Organizations need to create progress reports regularly. These reports can be used to showcase the impact of the enterprise risk management system. Progress reports can be made in two ways. One way would be to highlight the progress made by the ERM solution. The second way would be to judge the material risk to the organization.
These reports should be included in the normal updates on any project by the risk owners. They should include all the issues faced as well as the outcome. Regular reports should be sent to the upper management as well to help them keep track of how well the system is working alongside other business operations.
10. Development of Other Skills
A thorough understanding of the processes of an enterprise risk management system is not enough. Team members also need to explain its properties, advantages, and processes to other employees and stakeholders. This requires having really good communication skills. Team members need to be able to successfully show how an ERM system can help them achieve their business objectives and keep the enterprise as a whole safe.
When organizations take these steps while implementing their enterprise risk management solution, it will ensure that the process runs smooth with minimal difficulty. It is very important to make all the employees and stakeholders in an organization properly understand how the system works and the benefits it can provide. Training enterprise teams across various IT Security and Governance training programs helps in this regard. These certification training programs will help in the successful implementation and functioning of the risk management program in an organization.