What Is an Enterprise Risk Assessment?
You already know your company carries some amount of risk throughout everyday operations. But which areas are the most critical, and why does it even matter?
An enterprise risk assessment helps determine which issues of risk are of great importance within a corporate organization. This is key because it allows enterprise organizations to understand the level at which they are susceptible to potential problems and added liability.
Essentially, it all comes down to looking at common areas where most companies fail and seeing where your current setup meets the same criteria. It can also help shine light on problem areas that are very specific to your enterprise organization. While the process is typically used to determine physical risk, it can also uncover major flaws in other subjects, such as cybersecurity or digital data protection.
The assessment usually involves asking a few questions about various topics and determining where or how the coordinating department would respond or act. For example, what does management intend to do when realizing potential emerging risks, and what existing weak areas already exist? Is there a plan in place if any form of data breach were to occur?
In short, a corporate risk assessment is designed to detect the probability of a future incident so that appropriate steps can be taken to prevent it from happening. For companies that have a high cybersecurity risk, this can mean the process of detecting the likelihood of a data breach and determining the potential fallout should one actually occur.
Enterprise risk assessments are a very important part of not only discovering which risks potentially wait in the shadows, but also making a plan for how to handle them if they actually happen. By understanding weak areas ahead of time, companies can help keep issues from happening altogether or minimizing the impact.
What Is Enterprise Risk Management?
There’s no doubt that enterprises have different needs than small businesses. Sheer size and production volume make it more important to analyze potential problems and create plans to minimize risk in bigger organizations. That’s why enterprise risk management becomes so important.
So, what is enterprise risk management? Enterprise-wide risk management is a process that helps take into account various risks a company might face over the course of both normal and conditional operations. It helps these companies see the potential flaws and fallout associated with a breach, while creating a plan-based response to prepare for if they should ever happen.
The benefits of enterprise risk management are great and likely encompass more than most would consider. Perhaps the largest is simply the ability of management to have a greater awareness of risks the organization faces and to have a ready response if they occur. Furthermore, the process can help ensure all regulatory guidelines are being met in an organized and appropriate fashion.
Every corporate or enterprise-level organization needs to account for all potential risks, especially when it comes to data security and cyber protection. By going through the enterprise risk management process, potential issues can be addressed before they can damage the company’s reputation or cause an expensive lawsuit.
Enterprise Risk Management Framework
Of course, you need to have a strong plan in place when evaluating your company’s overall level of risk, which is why it is important to use an enterprise risk management framework. This is essentially a risk matrix template that asks various questions to help determine where major flaws or issues might occur.
Why is it so important to use one of these templates when determining your enterprise’s overall level of risk? These frameworks are tested and proven by experts to help encompass a wide range of topics and areas within an organization. In addition, they are often in accordance with multiple governance guidelines.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) offers one such option that is widely regarded in terms of ability to appropriately determine level of risk. The COSO framework focuses on strategic management while providing five categories crucial to analyzing the organization’s risk appetite. They include: governance and culture; strategy and objective-setting; performance; review and revision; and information, communication, and reporting.
But the COSO framework isn’t the only option out there. Other commonly used risk management frameworks include the ISO 31000 Series; the Operationally Critical Threat, Asset, and Vulnerability Evaluation (OCTAVE); and the Security Risk Management Discipline (SRMD).
Enterprise Risk Management Examples
Most management teams would agree that there’s a lot that can go wrong within an enterprise organization. While many of these risks are fully controllable, some are completely unavoidable in the long run. In fact, it is possible that the greatest risks a company can encounter are entirely uncontrollable. That’s why having a plan for potential issues ahead of when they could possibly happen becomes so important.
Consider these cybersecurity enterprise risk management examples:
- A major natural disaster causes an outage and all of your servers crash, leaving a vulnerability in your data protection software.
- Hackers decide to target your corporate brand due to a misunderstanding on social media.
- A disgruntled employee releases thousands of pages of personal information anonymously on the internet.
All of these issues might sound a little extreme, but the truth is that they are real problems faced by thousands of corporations each year. And, of course, these enterprise risk examples are only a small sampling of what risks a corporation could possibly encounter in terms of data management and cybersecurity. Simply put, there’s only so much an enterprise risk assessment example can do to give you insight to a potential problem, but it is a good place to start.
Enterprise Risk Management Model
Now that we’ve discussed the process, it is important to learn what an enterprise risk management model is and the various enterprise risk assessment template options that are most widely used.
Essentially, an enterprise risk management (ERM) model is simply the guide a company uses to determine where there are issues and what could happen if these risks are not appropriately addressed. Each framework is generally broken down into sections to evaluate an encompassing view of the potential for future problems.
While COSO is still the most commonly used model in a wide range of industries, it isn’t the only choice out there. ISO 31000, BS 31100 Code of Practice for Risk Management, and FERMA are all very commonly used to meet various needs. There are also industry-specific models designed to help companies determine niche-related problems and vulnerabilities.
Why were these frameworks created? Essentially, there was a need to dive deeper into the various risks that companies encounter to help keep them from happening. Following an enterprise risk management plan helps ensure that all areas are appropriately addressed and that certain elements are not forgotten in the analysis stage. It is also important to note that the most common ERM frameworks are updated periodically to take into account new levels of technology and any areas of changed risk a company might encounter.
Enterprise Risk Management Process
Creating and following a unique risk management process for your company doesn’t have to be difficult. The frameworks discussed here are all designed to be customized according to each enterprise’s unique needs, industry, niche, or area of focus. All that a company needs to do is decide on a model to utilize, make changes to customize the framework according to their specific needs, and complete the process.
And customizing the ERM framework for a specific corporation doesn’t have to be difficult. Frankly, the enterprise risk management process can be as simple or as detailed as your firm chooses to make it. The main thing to remember is that it is designed to uncover any potential risks or flaws that you might not have already considered, so it is a good idea to keep it fairly thorough.
In short, the enterprise risk assessment methodology is designed to make it so that if a risk should ever actually occur, the management team has already thought out a plan of action to minimize impact and mitigate damages. Furthermore, the enterprise risk assessment framework offers a series of steps to make it easy to assess risk comprehensively in an organized and productive fashion.
Enterprise Risk Assessment Questionnaire
One of the most important features of following an ERM model is the enterprise risk assessment questionnaire. This document asks various questions regarding the overall appetite for risk of the enterprise and helps make it easy to determine what issues could potentially arise.
Completing a business risk assessment questionnaire happens fairly early in the overall process. It is important to view this step as a fact-gathering tool that will ultimately shed light on what changes need to be made or what decisions should be in place in the event of an incident.
If you’re at the stage where you are filling out an enterprise risk management self-assessment questionnaire, it is important to be completely and totally honest as to what risks your organization faces.
Examples of questions that you might see on an enterprise risk management interview questionnaire include:
- Does management involve the board timely during the strategy-setting process, including when making decisions to accept or reject risk?
- What security plans does the enterprise have in place to help minimize the risk of a data breach, and how does it currently address such risks?
- Who in the organization is responsible for making decisions based on cybersecurity, and what failsafes are in place in event they are unable to do so?
These questions are designed to help the evaluator determine the current level of risk and view any areas that need special attention or accommodations.