Risk is inherent in every decision and plan an organization makes. The board of directors and other executive leaders must consider the potential consequences of each choice, the amount of resources it will take to execute the idea, and how they can use the available GRC tools at their disposal to accomplish their goals. One such tool is an enterprise risk management framework that conveys a top-down perspective to help to protect your business interests and workforce.
Developing an ERM framework is just one step of the risk management process. You then have to come up with a plan to put that program into action. We’ll explain why an enterprise risk management strategy is useful and the fundamental elements of an ERM approach.
What is an Enterprise Risk Management Strategy?
An enterprise risk management (ERM) strategy consists of structured processes for managing risks that could potentially affect the organization’s ability to achieve its goals. With a standard risk management strategy, each department inside an organization is in charge of its own risk oversight programs. ERM is different in that it helps organizations assess, manage, and monitor risks across their entire operation.
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Elements of an Enterprise Risk Management Strategy
Follow these steps to enact an enterprise risk management strategy:
1. Establish Enterprise Risk Management Objectives
Begin by defining the goals of the ERM strategy. Like any other GRC framework, these objectives must align with business goals and objectives. Take time to thoroughly understand the short- and long-term strategies of your company, as well as the resources available. This ensures the ERM framework is tailored to your specific needs and works in harmony with your overall vision.
2. Create a Risk Governance Structure
Next, create a risk governance structure that clearly defines the roles and responsibilities of the board of directors, executive management, risk committees, and other key stakeholders in managing risks. The governance structure should include mechanisms for regular risk reporting and oversight, ensuring risk management remains a dynamic and integral part of the organization’s culture.
3. Identify Risks
Another important piece of any ERM strategy is the ability to accurately identify risks that could block the organization from achieving its goals. This process is known as risk identification or event identification. This is an ongoing process, outlined in the risk committee charter, in which your risk committee and other stakeholders regularly conduct risk assessments of the company’s activities, present risks, and potential risks that could affect your chances of progress.
4. Prioritize Risks
Once risks have been identified, they need to be prioritized based on their potential impact and likelihood of occurrence. This prioritization, often done on a risk management matrix, enables the organization to focus its resources on managing the most critical risks first.
The organization’s risk appetite should guide the prioritization process. By focusing on high-priority risks, the organization can allocate resources more effectively and direct efforts toward risks with the biggest payoffs.
5. Develop Risk Response Strategies
With the systems in place for your organization to assess and rank risks, your risk committee can then create risk response plans to streamline company reactions to negative outcomes. The most common risk response forms are:
- Risk avoidance: Declining or stopping the activity that comes with a certain risk at the expense of any benefit.
- Risk mitigation: Putting protections in place to reduce the amount of risk in an activity.
- Risk transference: Displacing some or all the risk on a third party.
- Risk acceptance: Accepting the potential risks and deciding the potential benefits are worth the possible downside.
Developing these plans before you need them prevents high-level damage from impacting your organization.
6. Integrate Risk Response Strategies with Business Processes
The final piece of an ERM strategy is to integrate risk response strategies into your everyday work processes, such as strategic planning, budgeting, project management, and performance management. This alignment allows organizations to create a proactive risk culture where operational risks are managed in real-time, enabling better decision-making and enhancing overall resilience.
OnBoard Powers Effective Boards
Incorporating an enterprise risk management strategy is a great way to improve the breadth and effectiveness of your corporate governance model, but requires a high level of organization, teamwork, and the ability to adjust as the landscape changes.
OnBoard enhances governance and supports effective risk management, providing its users with a competitive advantage. With features such as real-time collaboration, secure document sharing, and customizable workflows, OnBoard helps boards manage their responsibilities more efficiently, ensuring risk management remains a priority at every level of the organization.
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About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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