Stepping Towards Enterprise Risk Management | CFO innovation ...

In today?s interconnected global environment, a wait-and-see attitude may be detrimental.

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Technology and economic policies have contributed to eliminating geographic borders. Corporate risk, therefore, has received unprecedented global exposure, with governance organisations, stock exchanges, the media, ratings agencies and stakeholders sharpening their focus on enterprise risk management (ERM) and its role within companies today.

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First line of defense

As the leading approach to managing and optimising risks, ERM determines how much uncertainty is acceptable within an organisation, providing businesses with a strategic risk analysis that cuts across business units and departments and considers end-to-end processes.

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Whereas internal audit is a second or third line of defense by a company to ensure a process is in place and adhered to in managing risks, ERM is a first line of defense in risk management. By adopting ERM, a business gains the ability to align its risk ?appetite? and tolerance with its business strategy.

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As a result, management can better manage risk ?opportunistically?? they can identify events that could have an adverse effect, determine whether the benefits outweigh the risks and develop an action plan to manage them. In other words, proper risk management allows organisations to examine and evaluate opportunities and create value by taking risks carefully.

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With risk management making headlines, discussions regarding ERM implementation have gained momentum as boards pressure management to ensure that unanticipated surprises and systemic risks are few and that those uncertainties are handled appropriately.

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Steps in ERM implementation

For those considering establishing an ERM programme at any level, here are some points to keep in mind:

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Start at the top. Critical to the development of ERM is programme leadership, which should begin at the top of an organisation with executive management and cascade down into a company?s business units.

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Develop a manageable ?risk universe.? Once leadership has been determined, management should conduct an enterprise risk assessment to identify the organisation?s most critical risks and determine the risk universe.

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