Why Enterprise Risk Management is the Key to Organizational Resilience

  • Jan 03, 2022
  • Admin
Why Enterprise Risk Management is the Key to Organizational Resilience

Disruptions to business operations are almost inevitable, and they never occur within the desired timeframe. Nothing made that more clear to business owners than the COVID-19 pandemic. It was a wake-up call for many, as organizations of all sizes and industries were forced to pivot and adjust in the face of constant disruption and uncertainty.

Many organizations are taking note, with Gartner going so far as to name organizational resilience as a strategic business imperative.

According to Gartner, organizational resilience encompasses the ability of any company to adapt to the changing atmosphere and the ever-changing and increasingly complex environment. Organizations stay resilient to deliver better and achieve their objectives.

So, the question remains, how does a business become resilient? Many business owners and executive teams focus on enterprise risk management as the fundamental basis of creating a resilient organization.

What is Enterprise Risk Management (ERM)?   

Organizational resilience starts with the executive leadership under an appropriate enterprise risk management (ERM) strategy. Investopedia refers to ERM as a plan-based strategy that focuses on identifying, assessing, and preparing an organization for dangers and any potential hazards that may interfere with its daily operations.

Simply put, ERM is how a business can manage risk across every aspect of its processes by using a common risk management framework. The framework is unique for every industry but will typically involve tools, people, and rules.

The ERM strategy helps a business to stay a step ahead of the risks that will threaten its operations in the future. An effective ERM has four main activities to look at closely:

  • Identifying risk
  • Assessing risk
  • Managing risk
  • Monitoring risk over time

Creating an ERM Plan

The first step to creating an ERM plan is to define all the core business objectives and then identify all the risks to the same objectives and strategies. The ERM plan you make will help to mitigate such risks. However, it is essential to note that the biggest risk that every business in the current era faces is a digital risk.

The increased need to transform businesses has led to more digital data breaches and various cybersecurity issues that organizations must address. Digital interaction is the primary way companies interact internally and externally. Digital processes are still expanding, and companies will continue to invest more time and resources in digital transformation.

The core operating objectives are also constantly evolving, and the risks, risk exposure, and priorities will keep changing over time. The ERM strategy plan you have at the start should be readily adaptable and evolve with the business as it reaches new heights with the digital transformation taking place.

Types of Risks to Consider

After your company establishes the risks that could impact its core objectives, it would be best to check on systemic and secondary risk drivers. Some of these risks are not immediate threats, and creating great operational resilience and risk management requires long-term thinking.

It is hard to predict disruption that may come in months or years ahead, but the aspects of a business can prepare for it by establishing policies that can adapt to any interruption.

Businesses are not short of risk factors to consider when creating an ERP plan. In the World Economic Forum's Global Risks Report 2020, environmental risk is increasingly becoming a popular topic in companies. The issues brought about by climate change can offer huge external threats to a business. Operating in areas prone to floods or other natural disasters can result in property damage and supply chain disruptions. It is essential to prepare for these risks to withstand their occurrences for business continuity.

While some risk factors are unpredictable (i.e. weather events that affect supply or a shipping container stuck in the Suez Canal), some are inevitable. As your digital footprint expands, so does your landscape for cyber risk. The more assets that are hosted digitally, the more bad actors out there are looking to exploit security vulnerabilities to make a lucrative payday. NASDAQ reports that, in 2021 alone, data breaches have continuously increased, affecting about 281.5 million. Companies must ensure adequate data security and backup solutions to keep secure amidst the growing cybersecurity issues.

The cost of a cybersecurity incident cannot be overexpressed. Between legal and reputational costs, the cost of retrieving and restoring stolen data or data taken hostage can ultimately decimate a business or organization. And while standard high-profit enterprise makes for an attractive target, non-for-profits and small businesses are by no means immune. Cyber-terrorists have already made names for themselves by holding hospital systems captive, even when it affects patient care.

Benefits of Enterprise Risk Management

Most organizations find ERM programs to offer a combination of both qualitative and quantitative benefits. Here are many benefits that come with creating a robust ERM solution. Some of these are:

1.      Creates a Risk Focused Culture

Businesses need to shift their culture to make risk more predictable by creating silos regarding managing their risks. Risk discussions are now a standard part of the overall business processes. The operational units will find that addressing their risk beforehand is a formal way to help manage them effectively.

There should also be seamless communication and discussion on the recognition of risks. It is not just a process of senior management, but everyone in the organization should share some level of buy-in centered on protecting its operations and de-risking the organization against threats. Having everyone on board is adequate for better insights and proper decision-making at all levels.

2.     You Get Standardized Risk Reporting

By setting up and standardizing an enterprise risk management office, you can implement better controls over your risk measurement methodology by standardizing reporting. By creating a holistic set of measures and policies throughout every area of the organization, you can better focus on symptoms of high vulnerability and equip your executive, director, and management teams to understand their risk factors and mitigate them from both a proactive and reactive standpoint.

Another advantage to using ERM is the improved reporting, timelessness, flexibility, and conciseness of the risk data. It will help the management recognize and unlock synergies requiring sharing corporate risk data and fast evaluation and consolidation factors. Ultimately, it becomes easier to develop practical solutions.

3.     Allows For Efficient Use of Resources

ERM strategy eliminates redundant processes to improve the efficiency of your actions. It helps to allocate the right amount of resources to mitigate risk. Ultimately, your trusted technology experts must lead your ERM strategy, whether in-house or an external third party. Diagnosing and formulating a complete plan of address objectively will be the difference between having an executable ERM strategy and mismanaging your organization's risk factors.

Every business requires an effective ERM strategy to compete effectively by reducing its corporate risks. If your firm is looking for a partner to help establish an Enterprise Risk Management program, reach out to our team at info@alpharidge.com today.