How managing risk at the enterprise level supports business performance

Sword GRC Blog

How managing risk at the enterprise level supports business performance

In an ever-changing risk environment, risk managers can find themselves under mounting pressure to manage the multitude of risks that are part of the corporate landscape – financial, health and safety, environmental, logistical, cyber risks, reputational (to name but a few) – whilst meeting regulatory and compliance requirements. For those relying on Excel spreadsheets and information held in ‘silos’, chances are, a traditional manual approach falls short on many fronts.

Leveraging digital methods to fully automate numerous time and resource-heavy risk management processes and provide meaningful data can lead to improved decision-making – supporting performance and helping achieve project or business objectives. Imagine how transformative it would be to have the ability to measure, predict, and take a preventative approach to risks. And to have the capability to anticipate, react to, and adapt to changes that pose threats, but also value-add opportunities.

Enterprise risk management (ERM) provides organizations with the ‘visibility’ they need to make the most of risks that are worth taking, mitigate the impact of counter-productive risks and be as prepared as possible for risks that are beyond their control, whilst building resilience.

 

ERM for effective, flexible, and modernised risk management 

For organizations seeking to put risk at the heart of corporate strategy, there’s much to consider. Here are just a handful of ways in which the enterprise-wide view of risks provided by ERM can help your business to:

Identify risks that affect business strategy 

You need to be able to constantly evaluate business strategies and gauge the level of risk exposure that falls within your ‘comfort zone’ in order to maximize opportunities and create value. Identified risks, categorized as necessary, should be assessed as part of strategic planning processes. What are the likelihood of risks, their possible impact, and the timespan in which they are likely to materialize?

Design effective risk responses 

Best practice is to align strategic, avoidable, or external risks with an organization’s risk appetite to determine the levels of risk that are considered acceptable. By designing risk responses that limit damage and exploit opportunities, managers can balance risk mitigation with the proposed benefits of strategic business plans.

Share responsibility and get your three lines of defense (3LD) lined up  

Think about aligning the functions or departments that will execute a risk response strategy and defining clear ownership for risk activities. The goal is to create a risk culture in which all personnel understands their levels of responsibility and what’s expected of them in executing risk strategy.

ERMA, a global learning center for ERM, defines the three parties in an organization’s internal 3LD model as:

  1. The first layer of defense is implemented by the unit, component, or business function that performs daily operation activities, especially those that are the front lines of the organization.
  2. The second layer of defense is executed by risk management and compliance functions, especially in structured risk management and compliance units e.g., department or risk management and compliance units.
  3. The third layer of defense is implemented by both internal and external auditors

Source: www2.erm-academy.org/publication/risk-management-article/three-lines-defense. 

Create risk processes that enable better coordination, communication, and reporting

It’s important that the three lines of defense develop a common language, shared between core business, risk management and IT functions. Ideally, risks should be analyzed using the same metrics organization-wide in order to attain full insights. Consistent formats in reporting will also make data easier to digest, all aiding decision-making.

Design risk and control frameworks 

A risk management framework sets out controls that can be used to reduce risk. Risk modeling and analytics enable you to monitor risk exposures and if necessary, adjust business strategy. Techniques such as stress-testing and scenario planning can be implemented, enabling you to assess the impact of external forces on business strategy, scope out how to limit external risks, and when necessary, post-event, help reinstate ‘business as usual as quickly as possible.

 

Active Risk Manager – award-winning ERM software supporting business performance 

From managing the project and program risk through to strategic business planning, Active Risk Manager (ARM) helps organizations to identify, analyze, control, monitor, mitigate and report on risk across the enterprise.

Book a demo or discover more here.