Risk management programs are a vital part of every successful business. The type of risk assessment and risk management programs a business uses is often determined by the type and size of the business. Enterprise risk management, for instance, is generally used by larger companies that rely on long-term company goals. Learn more about enterprise risk management, its benefits, and when it is most effective.
What is Enterprise Risk Management?
Enterprise risk management (ERM) is the practice of identifying specific circumstances or events within a business that can pose potential risks to the business, the employees and all those involved with the business. In addition to identifying possible risks, ERM involves the following processes:
- Analyzing the risks’ potential for creating damaging hazards
- Determining an effective strategy to eliminate or utilize the risks
- Monitoring the progress of the ERM?
What Type of Businesses Use ERM?
Although risk assessment and risk management programs are typically utilized by all businesses to some extent, very few businesses can actually say they have a fully-implemented ERM plan in place.
How is that the case if most businesses have some sort of risk management program in place? Although they are similar, enterprise risk management is not the same as risk management. ERM has the same components of traditional risk management but takes it a step farther.
Traditional Risk Management vs Enterprise Risk Management
The best way to describe the difference is that traditional risk management is used company-wide; enterprise risk management is used enterprise-wide. What this means is that ERM covers not only the business, but the employees, customers, board of directors, and even share holders.
In a traditional risk management process, risks are considered a negative thing that can lead to potentially dangerous hazards and, therefore, must be decreased or eliminated. However, in an enterprise risk management process, risks may be considered a positive because many businesses acknowledge that successful businesses must take a certain number of risks to be profitable. In fact, in large businesses, proactive and risky business is often not only considered but also expected.
What You Should Take Away
Going forward, here’s what you should understand about ERM:
- It’s a continuous process.
- ERM affects employees at every level of the organization.
- It’s crucial to a business’ strategy.
- It focuses on identifying specific events or circumstances that can affect the business.
- ERM is used to assure the top brass of maximum success.
- It is customized to the business objectives.
- Rather than eliminate all risks, ERM uses risks to help meet company goals.
