Enterprise Risk Management (ERM)
Enterprise Risk Management (ERM) is the need of the hour for every organization
Author : Girish Kelkar
Good management of any activity is defined by "Less Surprises". Over the past decade Risk Management has assumed critical significance for an enterprise. ERM needs now to be an integral part of "strategic planning activity. ERM is a process through which senior management identifies, classifies critical threats that would prevent their enterprise / organization from meeting stated goals and objectives. ERM methodologies also help assign responsibility and accountability for developing controls to mitigate risks. Additionally ERM also ensures implementation & monitoring of the identified risks. It is important to note that many organizations have now appointed Chief Enterprise Risk Management Officer CRO that is responsible for ERM activities.
 
Leaders in all organizations are concerned about proper risk handling in the organization so that they can ensure appropriate returns to the share holders and other stakeholders in the organization. ERM methods help organizations to achieve this objective. Leaders face lot of challenges due to the new trends in the Business Environment that are compounded by eBusiness methods, effect of Globalization and constantly changing Technologies.
 
ERM provides a framework for Risk Management, which typically involves identifying particular events or circumstances relevant to the organization's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress. By identifying and proactively addressing risks and opportunities, business enterprises protect and create value for their stakeholders, including owners, employees, customers, regulators, and society at large (ERM).
 
Effective ERM needs proper attention and structured approach for an organization. Alert attention to Risky issues, proper analysis of probability and impact analysis of the risk factors and practical balance between risk factors across the Enterprise. Organizations that ignore risk will end up encouraging high risk projects, and in many cases without the returns to justify them. ERM helps business units to solve above issues. Risk Management should be integrated with operational tasks being handled at all the hierarchical positions across the functional units. The individuals who are closest to risks are generally in the best position to assess what steps should be taken to reduce the firm's exposure to them. One needs strong Information handling backbone in the organization to ensure that all the risks, once identified are tracked and monitored across the organization.
 
The risk types and examples include:
Strategic risks :
  Choice of Business Strategy, Competitive Positioning, Competition, Socio-Political Trends, Capital availability, International Bench Marks for Quality of Products and Services
Marketing Risks :
  Market Changes & Growth rates, Competition in the "Served Market", Lack of customer satisfaction, Reducing market share, Product Quality & Pricing, Lack of proper Service, Late deliveries etc.
Technology Risks :
  Product Obsolescence, Technical incompetence, inadequate infrastructure, Faulty workmanship
Financial risk :
  Pricing risk, Asset risk, Currency risk, Liquidity risk, Capital Inadequacy leading to problems
Operational risk :
  Productivity & Efficiency of Operations, Customer satisfaction, Product failure, Integrity, Reputation, Lack of R&D efforts and lack of Innovations across the organization
Human Resources Risk :
  Organizational Culture, Management of Change, Resource availability, Skill sets & Competencies, Lack of motivation of the work force
Hazard risk :
  Accidents due to lack of attention, Liability Torts, Property damage, Natural catastrophe
One can easily develop a Risk Assessment Model based on parameters identified above along with appropriate weightages for the same. The weightages have to be decided based on the assessment of current situation for the organization.
 
Benefits of establishing a risk management program:
Successful attainment of the Organizational Objectives- Profitability & Growth on sustainable basis
Higher rate of successful Projects
Improved reputation due to Risk free Operations as planned
More efficient operations since bottlenecks are reduced
Resource allocation – money directed to the right place, the areas of highest risk events / projects
Sense of pride in a well-managed and disciplined organization
Lower costs / Lower losses leading to better prices
 
V3C3E3 can help you build the Risk Management program for your Enterprise. Contact us to know more.
 

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