Enterprise Risk Management (ERM) is a system that seeks to find out potential risks for businesses. The idea is to find risks and establish a way to prevent or minimize them. Despite coming off as being similar to the traditional risk management, it brings together the whole firm in the evaluation processes. In the long run, it affects business strategy and future actions as it is carried into the critical part of the decisions making process.
ERM follows a simple framework employed in the process of identifying, dissecting, reacting to and tracking risks as well as opportunities within the internal and external environment of a business. Some of the risk response strategies include;
• Avoidance: This is ridding the firm of any potential risks.
• Reduction: It involves lowering the chances for a risk occurrence by considering what can be done to seal any loopholes that seem to be the source of the threats.
• Share or insure: Evaluates the ideal reaction to either spread or finance threats
• Alternative Actions: Involves finding more viable actions for the risks by considering whether there is any solution that can help avert the problem.
• Accept: The company may make a decision not to take any actions
In a way, the traditional risk management system looks into a problem separately and finds a solution. ERM, on the other hand, does a wholesome view of all the possible risks and establish the link to the potential problems in the firm. An in-depth view and the steps taken to deal with the matters provide the company with maximum protection and the ability to make the most of the perfected business moves that are realized in the whole process.
A perception that people have come to believe is that ERM only looks at strategic risks affecting a business. However, the process also identifies other areas like compliance, reporting, and operational issues. ERM holds a broader scope for looking into issues affecting a firm which is beneficial through combining the risks and adopting a measure that can help the business take another direction.
The ultimate goal for applying ERM is to find and weigh solutions that are required to cope with any risks that may pop up and hinder the growth of a company. Finding potential problems and their solutions allows the company to have a quick response. When the strategy focuses on the combined risks which cut across various departments, it opens up the paths of communication. Consequently, enhanced communication yields a better approach when it comes to applying the solutions promoting the financial and human resource performance of a business.
ERM benefits in different industries
ERM and health care
Traditionally, risk management looks into the significant issues in the field such as securing the patients and lowering medical errors when making daily plans. Since these are vivid problems that are experienced in every health care facility, traditional risk management leads to taking up insurance covers to cushion health facility if any errors occur. ERM goes the extra mile and look more into other strategies like another course of action such as competitiveness and remaining financially viable while reducing the risks.
HIPAA has had its share when securing healthcare providers who are ready to adhere to its terms, but adherence is a part of ERM that people tend to downplay. Playing by the rules is not enough action for a firm. On a broader view, the company can take one problem from one sector and come up with a workable plan that goes beyond individualized conformations.
Common Security Framework (CSF) helps the HITRUST (the Health Information Trust Alliance) to ease the enterprise wide-view for health care providers who are comfortable within its set guidelines. It is inclusive of some standards such as HIPAA, also ISO, PCI, and NIST which make the process easy to adhere to and in turn secures the business wholly.
ERM and IT
In 2017, a survey conducted by CSIS and McAfee stated that close to $600 Billion are lost to cybercrimes annually. The amount is up to one percent of the Global GDP. Major firms have experienced significant losses due to cybercrimes.
RM is of greater use for IT firms more than the traditional approach. Cybercrimes are not new phenomena, and they are becoming a large part of companies all over the world. IT firms have to learn about various ways that new threats occur and determine how well they can shield their information and systems.
Security Operations Center (SOC) forms an integral part in IT firms which are built to ensure the safety of the systems that they manage. ERM approach requires that they take full consideration of a risk they are exposed to and ready themselves if the risk occurs. They ought to also take a look into any loopholes and what any threat that comes through them may potentially do to the firm. Once they have all the above clearly stated, it is easy to solve such an issue. If the case is as severe as having no way through, the firm should have a prepared way to aid in recovery as it strives to reclaim its former glory.
ERM success is only possible through a framework of teamwork. The involved parties include every member of the company from the most senior all the way down to the lowest rank. Every part of the firm is vulnerable; thus, it is crucial for everyone to be on board. It means that everything that involves different departments in the company should be put into consideration during the evaluation. The inclusivity is beneficial to a business as it seeks to build teamwork within the workplace.
Everything from the very beginning of pinpointing likely issues to the very last part of surveillance and making changes to perfect the risk management procedure, successful ERM implementation will permit companies to meet their set goals and objectives placing the business on the path to success.