How to Build a Successful ERM Program?

Enterprise Risk Management (ERM) is often considered a collection of all the different functions of an organization. But it is much more than that. Read this post to know expert tips on how to build a successful ERM program.

With the increasing reliance on digital technologies and businesses expanding to all the different parts of the world, the occurrences of business risks have become more frequent as well. Moreover, the impact of such risks is at an all-time high.

This has encouraged the senior management and boards to look for more efficient ways to prevent such risks. Building and implementing a successful Enterprise Risk Management (ERM) program is a major step in this direction.

But contrary to popular beliefs, ERM is not just a collection of different business functions. Nor is it something that only larger organizations should consider. No business, irrespective of their industry or size, is ever fully protected against these risks.

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It is only with the help of effective prevention strategies, like implementing ERM, that businesses can avert or at least reduce the impact of such risks.

So, how should a business approach ERM? Here are some expert tips to help-

1. Risk Identification and Prioritization

The first step for building a successful ERM program is to identify and prioritize the risks. Businesses generally use RCSA (Risk Control Self-Assessment) method for identifying risks across every department and staff positions.

The RCSA method makes use of a risk taxonomy for identifying applicable risks, internal control quality, and inherent and residual risk levels. Once the risks are identified, key risks can then be prioritized on the basis of the residual risk levels.

2. Building a Steering Committee for Risk Management

Successful implementation of ERM is only possible if the organization has a steering committee solely dedicated to risk management. It would be the responsibility of the steering committee to overlook the implementation of ERM, discuss high residual risks, set mitigation plans, and also define and help the staff understand the different roles and responsibilities in the framework.

Right from the CEO, the board of directors, senior management, business units, to support units, such as IT, HR, legal, etc. should understand their roles and responsibilities within the ERM program.

3. Selecting an ERM Framework

 Rather than creating an ERM program from scratch, most organizations prefer adopting one of the popular ERM frameworks that have already been created. Changes are then made to the existing framework to ensure that it perfectly meets the risk management needs of the organization.

Some of the most popular frameworks are the COSO ERM Framework, CAS ERM, ISO 31000, and the RIMS Risk Maturity Model. The selection is generally based on factors like the goal of the ERM program, typical risk functions, and internal audit of the organization.

4. Robust Monitoring and Reporting

Once a framework is selected and implemented, it is crucial to monitor all the key risks regularly. They should also be reported to the board of directors and senior management periodically. Monitoring and reporting is one of the most important aspects of making ERM work for your organization.

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Without monitoring, the best of Enterprise Risk Management programs would be ineffective in mitigating the risks. Based on the monitoring reports, further changes can be made to the ERM program for making it more effective.

ERM: An Opportunity to Improve Business Governance and Performance

Working with an ERM advisory firm to build and implement an ERM program is an excellent way to empower an organization. The systematic way in which ERM works can help protect business not just from internal but also external risks.

Overall, it can help improve business governance and performance, making it an essential program for every organization aiming to succeed in this volatile and hyper-competitive business environment.