Enterprise risk management (ERM) is the process of planning, organizing, and controlling the activities of an organization in order to minimize the effects of risk. Enterprise risk management includes not just risks associated with accidental losses, but also financial, strategic, operational and other related types of risks. In recent years, many external risk factors have lead to a heightened interest in ERM packages. Industry and government regulatory bodies, as well as investors, have begun to scrutinize companies' risk-management policies and procedures. In an increasing number of industries, boards of directors are required to review and report on the adequacy of risk-management processes in the organizations they administer. In a service driven economy, businesses cannot afford to let risks remain unidentified. Currency fluctuations, wide distribution channels and an unprecedented dependence on technology are just a few of the new risks businesses must assess. Many organizations are choosing to implement an Enterprise Risk Management process to ensure that a uniform approach is adopted towards risk identification, analysis and treatment. The Sarbanes-Oxley Act of 2002 became the driving force behind Enterprise Risk Management. Financial institutions are good examples of companies that have benefited from effective ERM. There are a few basic strategies that can be adopted in the process of Enterprise Risk Management. Experts in ERM recommend a five-year financial plan whereby a business can identify, prioritize and map all aspects of the most critical risks. Businesses must subject themselves to regular financial audits in accordance with government accounting standards. ERM calls for stricter corporate governance that provides greater transparency to stakeholders. More empowerment and responsibilities are given to Internal Audit Departments. A greater emphasis is laid on the code of ethics. ERM improves the way a company handles the more predictable risks that businesses face. It allows a company to avoid bad investments, and conversely, make investments that might intuitively seem too risky. Companies that have adopted risk management methodologies report fewer failed ventures and less damage from unforeseen events. |
