Today, your organization faces numerous risks that affect its operational efficiency, business continuity, service delivery, cybersecurity, and even regulatory compliance. Simple awareness is not enough to stay ahead of these risks.
You must find ways to manage, mitigate, accept, or transfer these risks. Here’s where enterprise risk management (ERM) comes in. It helps you manage, minimize, and in some cases eliminate risks to keep your organization safe and in business.
There are many different types of risks, including operational risks, financial risks, or strategic risks, while others could be reputational, regulatory, or related to cybersecurity.
What is ERM?
Enterprise risk management is a holistic and systematic approach to identifying, addressing, and managing the organization’s various risks. Here, holistic means that ERM looks at risk management strategically and from an enterprise-wide perspective. Thus, it is a “top-down” methodology of risk management that calls for leadership-level decision-making.
With ERM, the responsibility of risk management is not placed on individual departments or business units. Instead, the organization’s leadership, senior executives, and risk management team assess teams from an org-wide lens and accordingly sets expectations.
Why is ERM Important?
The importance of ERM is broad and far-reaching. At a high level, the objective of an ERM program is to uncover the risks that may hinder your organization from achieving its strategic goals or gaining a competitive advantage.
It offers a risk management framework that empowers you to prepare for any potential harm that may interfere with operations, weaken your cybersecurity posture, damage your reputation, or lead to losses.
Implementing ERM can help your company create an ongoing governance, risk, and compliance cycle that can help in many ways. For example, the ERM approach can simplify compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX).
ERM can streamline control maintenance and compliance testing activities and help you prioritize these activities, improve visibility and transparency into attestations and assurance. It can even help remove unnecessary redundancies between regulations for business controls versus IT.
An ERM program can improve your supply chain, so you can better plan your inventory and forecast customer demand, lower operational costs, and improve revenues. In many industries, ERM enables companies to understand the relationship between risk and value creation.
A comprehensive ERM framework consolidates and improves risk reporting so you can identify key risks that may affect your organization, quantify and manage them better, and implement the proper controls to eliminate or reduce them. ERM can also improve human productivity, enhance customer relationships, and improve your compliance posture.
What Are the Components of Enterprise Risk Management?
ERM consists of eight interrelated components based on senior management’s business decision-making and processes. Organizations need to take into account their entire landscape when establishing a holistic ERM program.
Before determining whether a risk should be accepted or denied, you need to assess your business goals. Management, in conjunction with the board of directors, must first establish the company’s mission and success metrics to ensure that they align with the decided risk appetite.
A risk assessment forms the foundation of your ERM process. This systematic, step-by-step, proactive process involves potential risk identification, evaluation, and prioritization. It also consists in determining the likelihood and impact of each risk and then analyzing current security controls.
Once you establish the business risks that could potentially impact your organization, you need to align responses to your business and strategic objectives. You can choose a strategy to avoid, accept, reduce, or share for each significant risk. It’s crucial to document the steps to risk mitigation or actions that will be taken to manage each risk.
Internal Business Environment
Your company culture and code of conduct influence your employees’ risk aptitude and how they deal with risks. The managerial skills of leaders will drive a healthy risk-aware culture and ensure that critical risks are never overlooked.
After determining your risk tolerance and risk appetite, you must review any potential event that can prevent the enterprise from meeting its goals and business objectives. Whether internal or external, all events must be classified as either opportunities or risks and then aligned to the overarching business strategy.
Your risk response and event identification processes require the creation of robust controls: policies, procedures, roles, responsibilities, and other “checks and balances” to implement the quick and effective responses.
Information and Communication
Employee training and education about risks improve awareness beyond leadership and compliance teams. Information needs to flow in a cross-departmental, role-based manner. By involving employees, they will be more mindful of the risks they encounter and make better decisions to reduce the organization’s risk exposure.
ERM must be continuously monitored to stay on top of the evolving risk landscape through internal audits, external audits, and as a part of ongoing management activities.
ZenGRC Can Ease the ERM Burden
ZenGRC can help you assess and manage the risks to your organization within the framework of your business and strategic objectives.
Its SaaS platform offers seed content aligned to the COSO Framework, so you can more easily manage corporate risk – whether you’re just establishing a new ERM program or trying to strengthen an existing program. Additionally, you can incorporate vendor management into your business risk management processes more rapidly.
ZenGRC provides a single source of truth by aggregating all records, reports, policies, procedures, and control listing in one place. Its reporting tools provide easy-to-digest reports with graphics that clearly explain your risk profile and help you take the right actions to manage or minimize risk.
It also streamlines the audit process, so you can save time and money and improve audit outcomes. Everything you need is organized and easy to access. Workflows and tasks are documented and automatic.
Schedule a demo to learn more about how ZenGRC can help your company establish an effective enterprise risk management program. Click here to get started.