An indication of how Enterprise and Strategic Risk Management have become discussion topics in all circles of the business world is the fact that Business Insurance Magazine has devoted a recent issue solely to this topic. The issue contains numerous articles that range from discussing Risk Appetite, to how ERM can become the spring board for a company’s Strategic Risk Management program. The magazine also describes success stories of companies such as Lego and Paychex who utilized Strategic Risk Management to increase their company’s profits even in these tough economic times. However, it was an article in the Perspectives section of the magazine that stood out in its honest assessment of how ERM can struggle at times within an organization.
In the article entitled “Successful ERM Built in Stages”, authors James W. Deloach and Shawn Season good give the reader some perspective on the common pitfalls a company can be susceptible to when trying to implement an effective Enterprise Risk Management system. The highlighted topic of “Practicing ELM instead of ERM” became the most important pitfall to consider; for the simple reason that if a company can effectively identify risk through a Risk Assessment, but does not apply it to its strategic outlook it is using ERM as a compliance function, rather than strategically. Therefore, a company’s ERM framework is no longer providing senior management with the transparency needed for a successful ERM program.
At The ALS Group each risk is evaluated strategically through what we like to call a Risk Matrix. The Risk Matrix evaluates company’s most material risks across the organization and explores possible mitigation strategies, such as disaster recovery programs or claims management. This allows a company to move beyond a perfunctory list of risks it is exposed to, and allows risk management to become more than purchasing insurance to mitigate risk. Instead, it (Risk Management) becomes a driving force that can lower a company’s Total Cost of Risk and give senior management a more transparent, three dimensional view of risk.
If you would like to discuss the ERM process or possible ways to mitigate your company’s risk further please feel free to contact The ALS Group for more information.
