why is erm important

Strategic Risk Partners offers a portfolio of risk consulting services that address complex and institutional risk challenges for business organizations. Our solutions and recommended processes for change are individualized to support the unique culture and organizational objectives of each client.

Enterprise Risk Management is a dynamic process

The traditional approach to managing business risks is changing rapidly. Organizations can no longer insure some operational risks and retain the balance of risks, including financial consequences, by allowing the business units to manage risks on an ad hoc basis. Increasingly, all business organizations must standardize and institutionalize the way they manage and respond to risks.  A variety of stakeholders are interested in how companies manage risk and are asking for tangible evidence that the process is effective and optimized by some form or Enterprise RiskManagement (ERM) operation.

 

Key stakeholders include:

  • Auditors
  • Rating agencies
  • Regulators
  • Lenders
  • Suppliers
  • Customers
  • Board of directors
  • JV partners

If they haven’t already, sometime soon, one or more of these stakeholders will be asking for and  auditing your ERM buisness process for effectiveness, reliability and sustainability.

These trends are occurring at the same time some companies are seeking opportunities to integrate Governance, Risk & Compliance with Business Continuity and Disaster Recovery. Even more opportunity lies ahead if the ERM process can be linked to Capital Budgeting and Strategic Planning. Optimization will occur when we can seek out risk and manage it aggressively to improve revenue, margins, earnings and cash flows.

An effective ERM type process should result in a standardized approach to risk decision making. It should consider both risks and rewards and enable the aggregation and correlation of risks. Finally it should integrate risk management with other management processes.

 

erm perspectives

While examining ERM programs S&P will be forming opinions:

  1. How management thinks about risks and what actions they take on these risks?
  2. Does management actually manage these risks?
  3. Is the Risk Management process centralized or de-centralized?
  4. Is the Risk management process formal or informal?
  5. Will the company be impaired financially or operationally by any of these risks
  6. Does management have stakeholder trust about managing their risks?
  7. Is the Board of Directors talking about risks on a regular basis?
  8. Does management decision making reflect the use of an ERM type process?
  9. Does management understand Risk Tolerance?
  10. Do resources allocation reflect the risk reward process?
  11. Are the amount and quality of resources in place to manage an ERM process?

Summary notes from Standard and Poor conference call re: ERM for General Corporates. May 9, 2008

Typing hands.