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, risk management solutions do two things: protect the enterprise from harm and create opportunities to improve business performance.

Properly managing risk helps enable business continuity. Business continuity management (BCM) is related to ERM. BCM is a management process that businesses use to identify potential threats and plan ahead in case those threats are realized, making sure the company can deliver on its obligations to customers, suppliers, and employees.

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

Why ERM tools are essential to business success

No matter what your business goals are, enterprise risk management 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 risk management. Almost overnight, companies were severely tested by a range of issues including insufficient employee protections, supply chain deficiencies, and financial unpredictability, 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. 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 concerns including insider threats and financial fraud, while addressing 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 risk management systems that include automated audits and security monitoring can continue to perform those tasks remotely—even across international borders. 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 enterprise risk management 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 those risks can also create opportunities.

For example, if you’re entering a new market or acquiring a new company, you’ll want to apply risk modeling 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 enterprise risk management in two essential ways.

1. It makes the process more data-driven. Historically, risk mitigation 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 more you integrate ERM into your existing processes and collect data around those processes, the more powerful your risk management 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 risk management processes. This absence of secure risk governance processes hampers an organization’s ability to identify and plan for risks and creates opportunities for data breaches. 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 risk and compliance efforts, look for a purpose-built ERM solution that can give you:

• Simplicity. First and foremost, your ERM solution must be easy for all stakeholders to use. This is crucial because you must have multistakeholder engagement to be effective. 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 risk management software 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 across your organization.
• Engagement. When you’re considering an risk management 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 digital risk management is based on technology, its real success is rooted in engaging both frontline 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.

The benefits of enterprise risk management

The standard characteristics and benefits that the 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.

Moreover, 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 effective risk management solutions isn’t a multiyear project requiring huge investments of resources and time. Instead, risk management 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 the future, 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.