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What is enterprise risk management?

Enterprise risk management (ERM) is a framework for managing organizational risk. Organizational risk is a broad term. It can encompass concerns ranging from ensuring employee safety and securing sensitive data to meeting statutory regulations and stopping financial fraud. Risk can be both internal, such as equipment malfunctions, or external, such as natural disasters. What is considered risk varies from one entity to another.

Managing risk is traditionally viewed as minimizing harm to the value the organization creates for itself, employees, shareholders, customers, and the community. Every enterprise decides what it perceives as a risk to the organization and performs some form of risk assessment. An ERM framework is a set of principles and procedures that helps the organization manage anticipated risks so that it can successfully achieve its objectives.

In this sense, ERM lends itself to both protecting the enterprise from harm and creating opportunities to improve business performance. Business continuity management (BCM), which is about making sure your enterprise can deliver on its obligations to customers, suppliers, and employees, is related to ERM. Properly managing risk helps enable business continuity.

A modern view of ERM is that it should help you increase the likelihood of meeting your organizational objectives rather than simply compiling a list of potential issues.

Oracle’s modern view of ERM

Oracle takes the approach that ERM is about more than simply protecting your assets. It’s about building a risk-aware culture so that your employees can take the most informed actions and make the best decisions. Our mission is to enable an ERM function that is always on, unified, coordinated, and aligned with your business operations.

Why ERM tools are essential to business success

No matter what your business goals are, ERM can help you achieve them. Although every company practices risk management in some way, a formal ERM process puts methodologies and practices in place so you can systematically increase your chances of success. In the absence of risk management, a company is more likely to make poor decisions, be less prepared, and struggle to consistently meet their business goals.

The COVID-19 pandemic created a universal case study for the importance of ERM. Issues ranging from insufficient employee protections to supply chain deficiencies to financial unpredictability severely tested organizations and their stakeholders, underscoring the need for agile, flexible, data-driven ERM.

Security is always a concern, but it took on a new and refocused urgency as businesses enforced work-from-home mandates and found much, if not all, of their workforce was remote. The sudden move left many companies scrambling to adapt their onsite protocols to offsite equivalents that would continue to protect the business and its employees from a wide range of issues including insider threats and financial fraud, and address data privacy, IP protection, cash preservation, and statutory compliance.

As devastating as many of the consequences have been, the pandemic has raised visibility into how risks can turn into opportunities; organizations have used ERM to help model scenarios that lead to operational transformation. For example, companies with modern ERM systems that include automated audits and security monitoring can continue to perform those tasks remotely even across international locations. Not only does this enable them to operate smoothly despite travel restrictions, it introduces a level of efficiency and cost savings that they will benefit from long after the crisis is resolved.

Creating the right ERM framework

ERM is a business process with specific steps, milestones, and stakeholders. A reliable and effective ERM framework is based on committed stakeholder involvement and supported by substantial, actionable data and robust intelligence.

Your ERM framework’s purpose is to help you identify, assess, and analyze key business risks—and minimize negative business impacts if those risks come to pass. The ERM framework must be context-driven and modeled across all lines of business, as different functions are vulnerable to different types of risk and at different levels. Finally, ERM must consider both internal and external risks and consider how risks can also create opportunities.

For example, if you’re entering a new market or acquiring a new company, you’ll want to apply ERM to understand potential impacts across every business unit and function. Robust data analytics, AI, and machine learning (ML) can help you create scenarios and models that pinpoint not only the potential for harm but the potential for business growth.

Cloud technology and analytics are an ERM game changer

Technology is transformative within the ERM arena, just as it is in so many other enterprise processes. Technology accelerates the power of ERM in two essential ways.

1. It makes the process more data-driven. Historically, ERM has been very top-down, emanating from company leaders who have delineated the enterprise risks, as they see them. Technology offers a bottom-up, data-based ability to classify existing risks and identify new risks based on reliable information. This capability is a game changer. Not only that, the better you do at integrating ERM into your existing processes and collecting data around those processes, the better your ERM will be.

2. It makes the process friendlier and more digital. Cloud technology enables simple but secure workflows that unify and coordinate activities across lines of business, locations, and functions. Many organizations still rely on spreadsheets, websites, and email for their ERM process. This informal or limited formality hampers the ability to identify and plan for risks. In contrast, transitioning to a digital platform such as cloud risk management significantly increases ERM effectiveness and allows the entire organization to easily participate, which is essential for success.

What to look for in an ERM solution

When you’re ready to bring technology to your organization’s ERM efforts, look for a purpose-built ERM solution that can give you:

  • Simplicity. First and foremost, your ERM solution must be simple to use for all stakeholders. This is crucial because you must have multi-stakeholder engagement to be successful. ERM is not a standalone process. It must be deeply integrated with your existing systems so you can easily reach all the decision-makers in your organization, and they can easily provide ongoing input.
  • Integration. An ERM program and technology implementation cannot be isolated and separated from the rest of the organization, as one person’s or group’s responsibility. Siloed ERM often fails to reach and influence other stakeholders. In this situation, ERM is simply a procedure with no collaboration, impact, or systemic adoption―all of which are essential to success. Instead, aim to build a culture of risk awareness enterprise-wide.
  • Engagement. When you’re considering an ERM solution, evaluate the solution’s potential for engaging all stakeholders throughout the organization. This is your key deciding factor. Choose a solution that’s intuitive and easy to use so that people will use it. Though digitized ERM is based on technology, its real success is rooted in engaging both frontline workers and organizational leaders so that it becomes part of everyone’s daily responsibilities and decision-making, both small and large.
  • Standards and best practices. Any ERM solution should embody global ISO standards and best practices and include a standard set of analytics to get you started.

When ERM becomes part of the fabric of every system

When your ERM solution is completely integrated into your finance, HR, and supply chain systems, you can model various problems, events, and possibilities across the business for potential impacts and opportunities. For example, during the COVID-19 emergency, your supply chain management (SCM) solution would help you recognize potential threats to the supply chain and shift course to meet new needs.

The benefits of enterprise risk management

The standard characteristics and benefits cloud delivers are a natural fit for ERM solutions: faster to deploy, far more secure, and always on. In the context of ERM events, such as system downtime or business disruptions from internal or external forces, an always-on infrastructure is essential to protecting your business and keeping you up and running.

Not only that, collaboration is crucial for effective ERM deployment. Collaboration in the cloud is much easier than in a non-cloud environment.

Additionally, with the cloud, creating an effective ERM solution isn’t a multiyear project requiring huge resource and time investments. Instead, ERM cloud solutions can be deployed quickly―even within days. That means you can move fast and start to reap the benefits immediately.

The future of enterprise risk management

For so many enterprises today, ERM is a disconnected and separate set of activities that fail to take advantage of the latest technology to help with crucial, risk-related decision-making. It doesn’t have to be that way. Digitized technology and the cloud together offer an integrated, fluid platform that everyone can easily engage with―to the greater benefit of the organization.

In its future state, ERM will be much more pervasive and data-driven, becoming an integral part of every decision and process. Using robust data, AI, and ML to drive your ERM not only helps you better identify risks, it also makes risk management a part of every activity across the organization. In this iteration, ERM becomes the fabric of everything everyone does.

With AI and ML embedded into an ERM cloud solution, you can continuously monitor for suspicious activity in your core business processes, stop insider threats, and coordinate preparation and responses. Your solution will bubble up that information through dashboards designed specifically for your stakeholders, so they have easy access to insights and analytics. From assessment to response to recovery, your solution should take a holistic approach that helps you keep mission-critical operations going, whatever risks come your way.

ERM isn’t just about minimizing harm—it’s a way to help organizations meet their broader goals and increase their chances of success, despite the risks.

Learning lessons from COVID-19

COVID-19 brought to the forefront how vulnerable the supply chain can be in the event of a disaster and how deeply this can impact worker health and safety. In response to the pandemic and due to the connected nature of the supply chain domain, we’ve built best practices into our ERM solution that help promote a safe return to work.