Nowadays, we are all affected by the volatile and complex world, and with the threat of recession and economic uncertainty, the ongoing effects of the pandemic, and now the conflict in Ukraine, developing and implementing integrated enterprise risk management strategies is more important than ever for the survival of many organisations.

Managers must devise and implement suitable solutions for the high levels of exposure to risks due to the economic, financial, and social effects the present economic framework is having on the global economy, particularly in Europe. Organizations with such a management solution in place may be able to create more efficient mitigation plans, enabling them to get through the current turbulence faster and with less value lost.

But what exactly is Enterprise Risk Management?

Enterprise Risk Management (ERM) is a top-down strategy that looks at risk management from a holistic approach, looking at the organization as a whole. Thus, instead of each business unit being responsible for its own risk management, firm-wide surveillance is given precedence. This methodology aims to identify, assess, and prepare companies for potential losses, dangers, hazards, and other threats that may impact the well-functioning of the firm and its ability to reach their goals. And it is not only looking at financial risks, but also at operational, market, technological, and macroeconomic risks.

To implement this strategy, organisations must not only determine which risks they face, but also evaluate their expected effects and develop action plans that are integrated into the various parts of their business plans, such as their annual and long-term budgets.

How to implement Enterprise Risk Management?

Before implementing any practices, a company must identify how it feels about risk and what its strategy around risk will be. This should involve strategic discussions between management and an analysis of a company’s entire risk profile.

With a company’s risk philosophy in hand, it is time to create an action plan. This defines the steps a company must take to protect its assets and plans to protect the future of the organization after a risk assessment has been performed.

When considering risks, ERM entails thinking broadly about the problems a company may face. Though far-fetched, it is in a company’s best interest to think of as many challenges it may face and how it will respond (or decide to not respond) if the events happen.

A company may determine several high-important risks are critical to mitigate for the continuation of the company. These priorities should be communicated and broadly understood as the risks that should not be incurred under any circumstance. Alternatively, a company may wish to communicate the plans if the event were to occur.

When an action plan has been devised, specific employees should be identified to carry out specific parts of the plan. This may include delegating tasks to specific positions should employees leave the company. This not only allows for all action items to be worked on but will hold members responsible for their area(s) of risk.

As companies and risks evolve, a company must design ERM practices to be adaptable. The risks a company faces one day may be different the next and so, the company must be able to carry its current plan while still making plans for new, future risks.

ERM digital platforms may host, summarize, and track many of the risks of a company. Technology can also be used to implement internal controls or gather data on how performance is tracking to ERM practices.

Once ERM practices are in place, a company must ensure the practices are adhered to. This means tracking progress towards goals, ensuring certain risks are being mitigated, and employees are performing tasks as expected.

As part of monitoring ERM practices, a company should develop a series of metrics to quantifiably gauge whether it is meeting targets. Often referred to as SMART goals, these metrics keep a company accountable on whether it met objectives or not.