Business & Finance Finance

The Importance of Enterprise Risk Management to an Organization

Enterprise risk management (ERM) relates to an organization's methodologies and procedures for assessing and managing objectives and goals relative to circumstantial occurrences. Many businesses are characterized by profitable and non-profitable opportunities as a result of taking risks. It is incumbent upon the enterprise risk management effort to identify and assess all risks and capitalize on opportunities.

The identification process includes risk management solution (RMS) to effectively address each situation. The (RMS) considers significant or influential impact that may affect the company negatively or positively. This is accomplished by identifying, analyzing, controlling, financing, and monitoring the activities of the enterprise. It also establishes strategic plans to rectify situations that will result in the advancement of the business.

The institution of risk management solution prepares an establishment to settle potential matters. The normal responses include avoidance of the action, which is conducive to increasing risks. Reduction of the possibility of actions related to the risks, using alternate means to deal with them, sharing a segment of, and acceptance of the risks are other measures that can be taken.

The sooner risks and opportunities can be determined, the quicker they can be addressed. Therefore, solutions could be proactive as opposed to reactive. The (RMS) concept offers protection for all stakeholders - proprietors, customers, employees, regulators, and patrons. Furthermore, it enhances the value and authenticity of the company's reputation because it minimizes collateral management concerns.

When investors have interest in a business, protection of their investment is vital. Therefore, collateral management is of paramount importance to stakeholders. It provides security and professional business advice and verification of the company's transactions. When the assets of an organization are effectively and efficiently monitored and supervised, profits are more likely to be realized.

Most major corporations have special departments with responsibilities for managing risks. Each department manages different categories of risks. However, they work in collaboration with each other to ensure a unified effort, and to achieve the overall objectives of the business. Some of the risk departments/functions include Marketing, Strategic Planning, Compliance and Ethics, Accounting, Law, Insurance, Treasury, Operational Quality Assurance, Operation's Management, Credit, Customer Service, and Internal Audit.

ERM may encounter challenges that are inter-departmental, or that affect the entire organization. Among the challenges are: the efficiency of the risks coverage; how to enable safe participation by all concerned; proper supervision of actions taken; what reporting methods to use; how to effectively manage action plans; the effective management of action plans; who takes responsibility for occurrences; prioritizing risks within the departments and across the board; the correct language usage.

There are external challenges which may extend beyond the control of the EMR. Challenge encounters can include: the regular pressures of business; state of the financial market; merging, restructuring, and acquisition; changes in technology; unstable geographical conditions; inflation of energy.

The implementation of ERM is highly recognized and utilized by many corporations because of the values it brings to the entity. Therefore, its leadership receives prominence within the organizations. In some companies EMR is headed by a chief risk financial officer. In others, the leader may be the chief financial officer. Both department heads usually reports to the chief executive officer.

The success of an organization depends largely upon the effectiveness of its leadership and operations. Therefore, the implementation of Enterprise Risk Management [] is an invaluable asset.

Leave a reply