What is Enterprise Risk Management?
What is enterprise risk management (ERM)? Does your company have anything like it in place? Do you know how secure your organization is from internal and external risks? In today’s world, it isn’t hard to see why taking your security seriously is a must, especially your cybersecurity. Knowing where to start with that is a difficult task, however.
You need to know, or establish, what your company’s enterprise risk management policy is before you can determine how to progress. A policy like this will guide you in selecting a framework that best suits your organization and maximizing the benefits from it. It is important to remember identifying and monitoring risks are often just as crucial as managing them. Identifying risks early and monitoring them to understand their threat level and urgency will help your management take the correct steps in eliminating or containing the risks as your organization progresses.
This article will go over the potential benefits of utilizing an ERM, the 3 components that makeup risk management, and some ways to solidify your ERM framework. There are a lot of resources out there to help you learn about this aspect of business management, but too much information can be just as difficult as not enough of it. This article is designed to help you build a general understanding of enterprise risk management and learn where to get the focused information you’ll need to move forward. For some further insight, download our enterprise risk management examples PDF.
Benefits of Enterprise Risk Management
Understanding the benefits of risk management is the first step to securing your business from the top down. Having a thorough understanding of what your company stands to gain with a quality ERM framework can go a long way in protecting your company’s financials, operations, reputation, cybersecurity, and many more aspects of your business. But what is an enterprise risk management framework? What does it do to help? Here, we will break down a few of the key benefits of ERM and how it could affect your business moving forward.
To understand the importance of enterprise risk management, it is important to understand what type of risks your company will likely face, internally and externally. Internal risks are those coming from within a company and can include things like human error, death or illness of an employee, outdated equipment or technology, or fraud. External risks are threats from outside the company that can impact the ability to operate on a grand scale. Things like business interruptions, natural disasters, material shortages, cyber incidents, and more.
Integrating an appropriate enterprise risk management framework is key to assessing and managing risk and maximizing the effectiveness of how they are handled. They can relay vital information to the risk management team, creating a more risk-focused culture in the company. This can only benefit an organization because the more employees think of risk management, the more your company is protected. Enterprise risk management framework examples are easy to find with a web search and they can lend themselves to a variety of industries.
Another benefit of an ERM framework is the standardization of risk reporting. When the reports are coming in a consistent and understandable format, the risk management team can spend more time on how to manage the risk rather than decoding the data. Risk management then becomes a more efficient use of resources and becomes more valuable to the organization. For more information, look into the enterprise risk management framework PwC (PricewaterhouseCoopers) uses or consult an enterprise risk management PowerPoint (.ppt) that can be found online.
What Are The 3 Components of Risk Management
Put simply, risk management is a process to identify, monitor, and manage any potential risk that might negatively impact a company. Looking at this definition, we can answer the question: what are the 3 components of risk management? Using the correct enterprise risk management framework will allow your company to effectively utilize each of these components to make the most of your risk management.
Identifying the risk is the first component to explore when looking into risk management. This is a major reason many companies are utilizing risk management software in the first place. It is one thing to understand your company could be at risk of hacking, but a different thing to identify a hacking risk as a real-time threat. Comprehensively analyzing the specific business activities in your organization is key to identifying risk. The sooner risk can be identified, the sooner it can be monitored and in turn, the sooner it can then be managed.
The second component of risk management is monitoring the risk. This goes beyond simply watching and waiting. Monitoring the risk is the act of tracking a potential risk and determining the most effective method of then managing the risk. Assigning each risk a threat value can only come from tracking and understanding the potential negative effects the risk will have on your business. Monitoring is essential to risk management because it determines the best course of action to actively manage the risk itself.
Finally, the third component is the management of the risk. The action you take to minimize the impact of the risk can vary from threat to threat, but it is important to have a plan for each type of risk you might encounter. Working with the experts in the specific field involving the risk itself is the key to containing or eliminating the risk altogether. This is why it is so important to establish some sort of enterprise risk management system and get the whole organization on the same page for handling such risks.
The advantages and disadvantages of enterprise risk management will be directly based on the effectiveness of the framework you decide to implement for your business. Learning how best to select a framework is a function of your company’s needs, their overall vulnerability, and the sector they reside in. in the next section, you will learn how to use the three components of risk management to zero in on a framework that works best for your organization.
Enterprise Risk Management Framework
Nailing down your company’s specific enterprise risk management process is a great way to maximize the overall effectiveness of the risk management itself. Knowing where to start with that process, however, is not the easiest step. As we’ve already looked at the components of enterprise risk management, this section will point you in the right direction of some effective enterprise risk management framework templates, or at the very least, how to develop an appropriate framework for your organization.
At this point in your business, you’ve determined the need for ERM in your organization. The first step needs to be building a cross-functional ERM team. A team of risk assessors who can take a holistic approach to implement an effective enterprise risk management framework. A team of people that are capable of seeing the big picture and taking actions to service the whole organization rather than a specific branch or department. This will be the driving force behind the success of your overall risk management.
This team can help determine which framework might serve your company best. They can easily do a web search for some popular enterprise risk management templates to find a general guide of which frameworks are proven in each given industry. Some popular enterprise risk management examples for them to look at might be COSO, J & J ERM, NIST, RIMS, SOC 2 Type 2, and ISO 3100. There are plenty of other examples of proven frameworks, but these are a few of the more popular ones that apply to multiple industries.
When it comes to developing an enterprise risk management framework that works specifically for your business, there are a few things you will need to keep in mind. The ERM team mentioned above will need an in-depth understanding of the internal environment of the company to understand how risk is addressed by those within the company. This includes risk management philosophy and risk appetite, ethical values, and the work environment itself.
Then will come the planning of how to manage the three main components of risk management as listed above. Systems must be built to identify, monitor, and manage potential threats as they arise. Then comes controlling activities to further minimize risk without sacrificing productivity, and the analysis of information moving forward. It is no surprise that many companies search for a proven framework rather than developing their own, but a customized framework can be highly effective if built and managed correctly.
No matter the method used for adopting an ERM framework, a cybersecurity risk assessment with Trava Security is without a doubt the best way to see what your company’s security weak points are. To learn more, contact Trava today.