Difficulty to understand the industry vernacular may be part of why a study showed 89% of executives said they wanted to build an Enterprise Risk Management (ERM) process into their organizations; yet only 11% of their companies had completed the implementation.
Whatever level of risk management, change management or similar process your company has in place, sometimes people like to obtain working definitions without having to ask the expert who enjoys using hard to understand acronyms.
Five of the primary aspects of Enterprise Risk Management follow:
1. Does ERM focus only on money?
While money is the language of business, ERM goes beyond dollars and cents. In a natural disaster, the safety of employees is a paramount concern. Transactions with customers contain an element of privacy. Safety and privacy are ethical issues.
2. What activities does ERM involve?
There are eight fundamental ERM activities: (1) determining the organization's risk appetite, (2) setting organizational objectives that reflect that appetite, (3) identifying internally and externally potential risk events, (4) assessing the level of risk associated with these risk scenarios, (5) developing and implementing a pro-active plan to address those potential risks, (6) establishing and implementing control policies and procedures, (7) gathering information and communicating it to people in time for them to fulfill their risk management responsibilities, and (8) continuously monitoring the program and making adjustments as needed to keep the ERM program current and relevant.
3. What are ERM deliverables?
ERM does not stand apart from other parts of the organization. The program deliverables include objectives that reflect management's risk appetite; risk assessment and planned response; monitored compliance with adequate internal controls; and implementation of a communication plan.
4. How do I know whether our ERM program is a success?
Determining whether an organization's ERM program is a success is a judgment call. The judgment is based on the effectiveness of the eight ERM activities. Are the program deliverables and risk responses effective?
5. How does ERM fit into the goals and structure of the organization?
The eight ERM activities (reference question 3) are applied across strategy, operations, reporting, and compliance. ERM is integrated throughout the organization's structure such as subsidiary, business unit, division, and entity levels.
With a better understanding of ERM terms added to your vision, create an initial draft of your risk management program or process to get from here to there. An old adage is to Plan the Work and Work the Plan. Break the plan into detail steps or milestones you can monitor by time and assign responsibility to. Those smaller chunks build self confidence and provide the ability to check in to make revisions on the upcoming steps. There is a reason people say inch by inch, life is a cinch.
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Bottom line? - What you do not know about your business can cost you your business!
Stop Profit Leaks Now. Apply this information to improve your profitability, reengineer business models, and strengthen or gain competitive advantage in the marketplace to check companies vital signs and diagnose problems before unpleasant side effects show up on their balance sheets. Benefit from his extensive C-level experience in accounting, IT, sales, management, manufacturing and HR to work writing, speaking and consulting on enterprise risk assessment (ERM), risk analysis, corporate governance, change management and the bottom line impact of going green. The FiscalDoctor corporate checkup helps you identify internal problems from inventory mismanagement, outdated and incomplete financial reports, and false accounting assumptions to external forces like misreading the market, losing competitive advantage and missing golden opportunities.
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From the author of the newly released book, 'Stick Out Your Balance Sheet & Cough: Best Practices for Long Term Business Health'. Available on Amazon. If you would like to improve your risk management process on a beer budget for your champagene taste or determine the top 3 to 5 issues to prioritize in your business, open this book and say Profit.
From Gary W Patterson, http://www.FiscalDoctor.com Copyright 2009
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