An alarming trend: does enterprise risk management really work?

AuthorCampagna, Frank
PositionMoney Talk

Enterprise risk management (ERM) has become a buzz term over the past several years. Most likely, if you are in management at your company, you have been inundated by articles, fliers, emails and consultants trying to sell you on the idea of implementing ERM at your organization. As practitioners of ERM implementation, we are surprised just how few professionals truly understand the spirit of ERM and what it is meant to accomplish at your organization.

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ERM will never be the same at any two organizations, but it does have common elements that are often overlooked. ERM is meant to address four key elements:

  1. apply the company strategy

  2. across the whole enterprise

  3. within the company's risk appetite

  4. while trying to achieve the company's objectives

We've never offered our clients a piece of paper with a definition written on it and expected them to think they got their money's worth, and that is not how we approach ERM. However, in the spirit of enterprise risk management, a definition is something that we often start with when assessing our clients' needs. We find that most companies do not have the four key elements defined for their organization. Without this, we can't begin to create the platform that will define your organization's risk management.

When our firm is asked to assist in the creation of an ERM program at an organization, we are often boldly asked how often the program actually works as designed and, more importantly, how often it fails. It's difficult to put on a stoic face and pretend, so the response is "most don't work as designed, and eventually most fair Although this sounds like ERM is actually an act of futility, it really doesn't have to be. Adequate preparation can prevent the catastrophe of a lot of wasted time documenting a charter, identifying KRIs (key risk indicators), appointing personnel within your organization to the ERM committee, and so on.

It is here that we are reminded of an oft repeated saying: "When you fail to prepare, you prepare to fair While at times this may not sound all that profound, in essence, it really is!

Let's take a look at the trends of failed ERM programs:

Poorly Defined Strategy or No Strategy at All

So many times we are asked to assess a company's ERM platform only to find that few, if any, within the organization (the "enterprise") have a clue as to their organization's corporate strategy. This is why it's one of the first questions we ask. Additionally...

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