Value Generation through Enterprise Risk Management
By Swaminathan, Prasanna, May 8, 2015
The global business community operates in an increasingly complex, competitive, volatile markets; faced with renewed challenges and threatened by a variety of factors such as complex supply chains, growing cyber threats, increasing business disruptions, etc. In such a scenario, many organizations have embraced Enterprise Risk Management (ERM) and have benefited from it.
ERM is the process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization’s objectives. In this regard, to know how organizations have embraced ERM and derived competitive advantage, I would like to elaborate and explain the following topics in the future blogs:
Integration of Risk Management into Strategy
Imagine an energy company that is planning to invest in a new power generation plant. By adopting ERM, it can have a look at risk adjusted returns and alternatives before deciding on such huge capital spending projects. Organizations that have embedded ERM in their strategic planning process have an increased likelihood of meeting their strategic goals and obejctives.
‘Risk Adjusted’ View of Performance Management
Consider a bank that is performing the appraisal of one of its traders belonging to the trading desk. The performance assessment must not only look at the returns he has earned for them but also the risks he has taken to earn those returns. Organizations that strive to derive value must try to maximize risk-adjusted profitability by trying to include risk-adjusted performance metrics.
Managing Emerging Risks
Organizations need to continuously monitor and assess their ERM program to manage and respond to a variety of emerging risks such as repuatational risks, vendor risks, information security risks, conduct risk etc. Many organizations leverage social media platforms to gather insights regarding the customer sentiments and incorporate them as a part of their risk assessment process.