Over the last couple of decades, enterprise risk management (ERM) has become the gold standard for managing corporate risk — but do the benefits of ERM warrant this reputation? As organizations embrace ERM, we look at the concepts and processes that make it up and ask: what are the benefits of enterprise risk management?
What Is Enterprise Risk Management (ERM)?
As you might imagine, enterprise risk management is an organization-wide approach to managing risk. It was first introduced as a concept in the 1990s, and as businesses recognize the benefits of ERM, it has become increasingly adopted across sectors.
ERM is designed to tackle risk holistically and strategically; as a result, enterprise risk management benefits the organization by delivering a cohesive, “big picture” risk strategy. It is often described as comprising “three lines of defense” (3LOD) in the ongoing fight against corporate risk. While it is often referred to in the same breath as governance, risk and compliance (GRC), the two differ, with ERM more accurately viewed as a subset of GRC.
The Risk Management Society (RIMS) defines enterprise risk management as “a strategic business discipline that supports the achievement of an organization’s objectives by addressing the full spectrum of its risks and managing the combined impact of those risks as an interrelated risk portfolio.”
ERM typically embraces three fundamental components: operations, financial and strategic risk management.
7 Benefits of Enterprise Risk Management
So we’ve established what ERM is: now to explore, in more detail, the benefits of enterprise risk management.
1. Provides a greater awareness of your organization’s risks and enhanced ability to respond. Because it encompasses all areas of organizational exposure to risk, including financial, operational, reporting and compliance, one benefit of enterprise risk management is the oversight it provides.
Whether delivering actionable, real-time insight to teams on the ground or giving the board a 30,000-foot view of risk — ERM dramatically improves your ability to respond to the organizational threats you face.
2. An increased ability to comply with legal and regulatory requirements. ERM ensures you are positioned to comply with reporting and other regulatory requirements. It gives you the data to demonstrate compliance and the assurance that all threats are managed effectively, minimizing the risk of regulatory compliance breaches.
3. Offers a greater confidence that you can achieve your strategic aims. When you’re confident that all the risks with the potential to derail your strategic aims are in scope and being managed, your objectives become achievable. You’re aware of all the possible curveballs — and can take steps to mitigate them.
4. ERM gives leadership clear oversight of risk. ERM makes it easier for you to present your risk profile to your board and leadership team.
Customizable storyboards and one-click reports enable you to access real-time insights into risks and opportunities — and to give executives and other stakeholders the risk data and analysis they find most useful.
By communicating this holistic view, you can present risk to leadership in a way they value, and easily demonstrate how risk affects your entire organization.
5. Your operations are more efficient and effective.
ERM prioritizes and manages your risk exposures as an interconnected portfolio rather than in silos.
Evaluating risk holistically, and in the context of all internal and external environments, systems, circumstances and stakeholders, brings efficiency and effectiveness to operations in a way that isolated risk management programs cannot.
6. Risk management is integrated into your daily business activities.
Another benefit of enterprise risk management is its ability to make risk management an integral part of your operations.
Having a clear framework for managing all risks — whether quantitative or qualitative, strategic, financial, IT-related or third-party — gives you the power to continuously detect, evaluate and monitor risks before they become a problem.
7. You can proactively identify and act on risks across your organization.
Because ERM enables you to automate risk monitoring activities and leverage advanced risk analytics, you can swiftly identify discrepancies, outliers and anomalies — and, as a result, quickly identify risk patterns and predict threats.
This proactive approach to risk is one of the core benefits of enterprise risk management, helping organizations turn risk management into a strategic advantage.
Take 7 Steps to Performance-Enhancing ERM
There are numerous benefits of enterprise risk management. From giving a structure to robust risk data capture across the organization to its ability to drive a proactive and comprehensive risk management strategy, the benefits of ERM are wide-ranging and significant.
To read more on enterprise risk management benefits, you can download a free copy of our ebook, 7 Steps to Performance-Enhancing ERM. You can also learn about the benefits Enterprise Risk Management from Diligent can deliver. And if you want to keep pace with the ever-changing risk landscape, you can sign up for Diligent’s regular GRC newsletter, which, alongside a proactive approach to risk, equips you to achieve all the benefits of ERM.