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Of late, we have been seeing more instances of risk and unpredictability emerging in business and social environments. These risks carry financial, social, and reputational impacts that, if not addressed, can decimate businesses the world over. In an ever-changing marketplace, having an integrated approach to risk management is indispensable for businesses to effectively mitigate risks and have a competitive advantage.
Enterprise Risk Management (ERM) is a disciplined approach towards identifying, addressing, and managing organization-wide risks. Traditionally, it has been defined as a collection of efforts to map risks to people, projects, and processes, and manage them. In doing so, ERM addresses the different aspects of risks in the operational, financial, strategic, regulatory, and cybersecurity functions.
In recent years, ERM has assumed a holistic and integrated form, contributed by the increasing number of global and local regulations, the growing preference for remote work post-pandemic, and multiple other economic and governance factors.
The evolution of ERM into an integrated function
As a concept, ERM has been around for decades. However, with the COVID-19 pandemic, organizations were pushed to the brink of digital adoption and forced to onboard ERM strategies to foresee risks and plan mitigation. Similarly, increasing global tensions, such as the recent unprecedented Russia-Ukraine conflict, are placing tremendous stress on the international supply chain, leading to increased costs and glaring gaps in demand supply. Organizations are realizing how an effective risk mitigation strategy could help them proactively manage and mitigate such risks. An integrated approach to ERM is important to organizations for achieving operational resiliency and agility.
Staying one step ahead through Enterprise Risk Management
Enterprise Risk Management is an attempt to address organization-wide risks which involves the following key steps:
i. Risk IdentificationThe first step is to identify both external and internal risks and evaluate an organization’s risk landscape.
ii. Risk assessmentOnce the risks are identified, organizations need to prioritize them based on their potential impact and the likelihood of occurrence. This will enable the organizations also to understand the inherent and residual risks posed to the business.
iii. Risk TreatmentFollowing the assessment, organizations need to look at the possible risk treatment options such as accept, avoid, reduce or transfer them. This is a critical step in preventing business-critical risks that impact their operational efficiency, reputation, and overall risk posture.
iv. Risk MonitoringOrganizations need to continuously monitor the risks against the changing landscape and ensure that the risk treatment plans work as intended or do a check and adjust as required.
Technology-led ERM – a key strategic enabler
A common challenge faced by organizations is in consolidating, automating, and streamlining their data, system, and processes for risk management. Technology can play a key role in automating and facilitating the process on an efficient and real-time basis. Organizations need to choose technology solutions that help them with their integrated risk management journey.
However, it is important for organizations to realize that it is not just about the technology, but also includes the people, processes, and policies in an organization. At the end of the day, ERM is driven by enterprise culture and leadership, to reap the benefits of operational resilience and agility.
Benefits of an effective ERM framework
Since risk management is indispensable to operational resilience, it is important that organizations develop, refresh, and refine their risk posture in view of their evolving future. ERM enables them to do this in a proven and structured manner while delivering the following benefits:
Efficient use of resources
Risk management enables businesses to efficiently leverage their resources. In doing so, they stand to achieve greater operational efficiency, productivity, and a considerable increase in revenue.
A cohesive workplace
ERM promotes a more transparent working environment that helps to gain confidence both from a top-down and bottoms-up approach right from the board to the lowest level.
Confident stakeholders
An effective and integrated risk management process instills confidence in the key stakeholders of the organization. They are aware of the risks faced and the impact they may have from different aspects such as audit, compliance, or risk management related aspects.
Improved outcomes
Integrated ERM helps organizations to be better prepared to face uncertainties posed by risks and thereby improves their resilience and agility.
Authors

Author
Swaminathan KS
Associate Vice President – Products, BCT DigitalSwami has 18+ years of experience in the areas of Governance, Risk Management, and Compliance working with Fortune 500 clients across diverse industries such as Banking & financial services, Energy & Utilities, Hi-Tech & Manufacturing clients. He has spearheaded multiple projects focused on Enterprise Risk, Trading Risk, IT Risk, Business Continuity, and Third-Party Risk Management. He is also a PECB Certified ISO 31000 Senior Lead Risk Manager.

Author
Pradheep Subbaraman
Product Consultant, BCT DigitalPradheep has expertise in the areas of enterprise risk and process audits working with one of the top 4 audit firms. His focus has been on internal financial controls, control effectiveness, and assurance. He is an MBA graduate from Great Lakes Institute of Management.