It is not only the operational and tactical risk management that you need to care of to survive in this changing business scenario. The enterprise risk management(ERM) plays a major role to keep the business secure from the risks that can obstruct its growth by hampering it to meet the defined goals. To prove the seriousness of this issue, Standard & Poors have made the effective ERM strategy necessary for the healthy credit rating of the business houses.
Its comprehensive approach helps the firm to determine the vulnerable areas open to the threats, analyze proactively and also mitigate it by incorporating the productive measures. To make sure that the company gets the benefit of enterprise risk management, there are a few things that they must include in their business practice.
Device An Enterprise Risk Management(Erm) Structure
When you start a project, you create a plan on how to move further with it, step by step. Follow the same perspective with the ERM. Managing and mitigating the risk is not the responsibility of a single person. Everybody from the root level of the company to the top executives, for instance, board members of the firm must analyze, interact and control the risky conditions and handle them altogether.
Most importantly, everyone should follow a common plan regardless of the department. This way, it will help the auditors to figure out the weak areas and recommend measures to tackle the threats easily.
Analyze The Objectives As Well
When you create a plan for risk management, the next step that the business normally take is identifying the risks. But before that, it is essential to define the objective sets. It will help in creating a clear philosophy towards the threats that everybody must follow. This philosophy set depends upon the ethics that the firm believes in, the environment where the business runs and the risk appetite. Risk appetite is nothing but that degree of the risk that the company can bear.
Make Everybody Responsible For Implementing The Erm Structure
As already mentioned, everybody is responsible for the success or failure of the risk management. So, to implement the plan, it is essential to assign the responsibility to every employee of the business firm. These employees will have a set of goals that they need to obey to fight the risks.
Identify The Risks
There are many types of risks that the company can face in its lifetime. Well, if you believe the business magnets, you cannot imagine business without the risks. Some of these risks can be of great damage while others are not harmful. Recognizing these risks are very critical for the success of the ERM framework.
Now comes the most important aspect of the ERM which is identifying the risks that can affect the objectives of the company in the worst ways. Therefore, it is critical to identify those events that can bring losses to the company. There are some of the factors that help in the risk assessment. They are mentioned below.
- The possibility of the occurrence of the risk
- The severity of the impact of these risks
- Management of these risks
Mitigation Plans For The Risks Management
After identifying the risks, now is the time to act according to the structure of the defined plan. The employees must take the necessary control measures to mitigate the occurrence of the risks. This measure will also require a well-crafted plan. It is possible that different types of risks require similar precautionary measures, but the aim of these plans is finding the root cause of the risks and eliminating them effectively.
Enterprise risk management is necessary for all the levels of the firm. Each level consists of employees who work hard to understand the risk management plan, implement it and provide feedback to the higher officials in order to perform the necessary corrections to the plan structure.
In case the entire procedure of the management of risks appears challenging, you can take the help of the professional advisory firms. They make sure to provide services of enterprise risk management, internal audit, risk, and regulatory advisory at cost effective prices.