Strategic implications of Enterprise Risk Management
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A comprehensive Enterprise Risk Management (ERM) is part of good business management practices. It is a process that effectively addresses uncertainty, identifies risks and opportunities, and optimises the ability to generate value.
Experts define ERM as the process of identifying, analysing and quantifying the likelihood of losses and side effects arising from disasters and the corresponding preventive, corrective and reductive actions to be taken, and creating a plan to reduce or control them and to reduce the effect they could cause.
A risk implies possible loss or damage; risk can result from various causes, such as legal liability, natural disasters, accidents, management errors, or cybersecurity threats.
Currently, ERM is one of the main concerns of public and private organisations. This concept implies any human activity, being important that professionals who aspire to occupy positions of responsibility in their companies know what ERM consists of and its primary functions. Hence, it is essential to master the reference standard in this sector, ISO 31000.
ERM is considered the direct action of institutions, companies, organisations and professionals in the face of risk. These risks can be operational, legal, labour or financial, among others. An example of risk may be that a worker in an organisation is injured during a work schedule. An example of ERM would be to create mechanisms to prevent the worker from being hurt.
ERM is a scientific discipline, which means that it follows proven and rigorous methods to reach empirical and generally valid conclusions. In the field of financial decisions, such as insurance, losses are usually expressed as amounts of money.
When risk assessment is used for decisions related to public health or the environment, there are different opinions on whether the loss should be quantified in money or some numerical measure associated with quality of life. Generally, in the field of public health or environmental decisions, the term loss is expressed as a description of the result of damage caused.
It is essential to highlight the strategic nature of ERM since when inadequate ERM can end up causing the closure of a company. Therefore, in a current context of constant change, it is crucial that all companies, regardless of size or nature, have a Risk Management strategy.
ERM is a procedure implemented by the company director board, the management, and the personnel who provide services. It is applied in established company-wide strategies designed to identify potential events that may affect the company and manage risks to provide reasonable security and integrity regarding achieving objectives.
For example, it is pointed out that the management of risk when the company personnel is travelling, it is possible to start with a prior evaluation of the trip and an analysis of the situations that may occur during the transposition.
Consequently, the company should design policies to reduce the risks detected. Finally, the Business Traveller must be insured against unseen threats to eliminate them in advance.
We could consider that MRE is a repetitive process. Certain sequential activities are carried out parallel to others, such as establishing the context, identifying events, analysing, measuring and integrating risks, evaluating and prioritising hazards, and finally, monitoring and reviewing ongoing risks activities.
Further comments: the actors in a company ERM program comprise everyone, from top to bottom, from management to the lowest staff level. Whilst everyone is responsible for the effective and efficient operation of the program, the ultimate responsibility rests on the Chief Executive Officer, CEO, who assumes ownership of all risks to which the company is exposed and reports to the Board of Directors.
However, ownership of the individual, sectional, team or department risks are associated with the staff/team/committee in charge of the processes or functions where the troubles arise.
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