Boosting Momentum in Enterprise Risk Governance
In today's dynamic business environment, the importance of effective risk management cannot be overstated. Companies are increasingly focusing on Enterprise Risk Management (ERM) to improve operational resilience, regulatory compliance, and risk transparency.
The ownership of risk management varies for strategic, operational, and compliance risks. It's crucial to assign ownership to the managers who are best positioned to achieve expected results. For instance, a contrarian analysis approach can be useful for assessing strategic risks, while operational risks require an assessment of the organization's exposure to key suppliers, major customers, and logistics. Financial risks, being more susceptible to measurement tools, benefit from a focus on cash flows and market, credit, currency, and other related risks. Compliance risks, on the other hand, necessitate an analysis of the organization's conformance with specific laws, regulations, internal policies, and contractual arrangements.
Several companies, particularly financial institutions, are implementing ERM due to regulatory requirements such as the European DORA regulation effective from January 2025. This regulation aims to improve sensitivity to digital risks and ensure compliance with ICT risk management standards.
The primary objectives of the risk management process vary among companies, ranging from improving governance to facilitating risk-taking for value creation. Regardless of the objective, holding managers accountable for driving and owning the risk responses is fundamental to any effort to integrate risk management into strategy setting, business planning, and performance management.
The organization's existing infrastructure, including policies, internal activities, organization, reporting, and systems related to managing risk, may need enhancements to achieve the desired objectives. Simplifying the ERM implementation by leveraging existing processes and tools can help streamline this process.
The success of the risk management process is significantly influenced by the organization's culture. A culture that encourages open communication, sharing of knowledge, and ethical behavior is ideal. Effective integration of the risk management process with core management activities such as strategy setting, annual business planning, performance management, and budgeting can make it more relevant and valuable.
Lastly, it's essential to support the ERM implementation from the top. With the right strategies and a conducive environment, companies can navigate the complexities of risk management and emerge stronger and more resilient.
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