Hundreds of years ago, prosperous towns managed the various risks of foreign invaders, thieves, and wild animals by fortifying their entire communities with walls and towers. Today’s business owners can take a similar approach with enterprise risk management (ERM).
In short, ERM is an integrated, companywide system of identifying and planning for risk. Many larger companies have entire departments devoted to it. If your business is ready to implement an ERM program, be prepared for a lengthy building process.
This is not an undertaking most business owners will be able to complete themselves. You will need to sell your managers and employees on ERM from the top down. After you have gained commitment from key players, spend time assessing the risks your business may face. Typical examples include:
- Financial perils
- Information technology attacks or crashes
- Weather-related disasters
- Regulatory compliance debacles
- Supplier/customer relationship mishaps
Because every business is different, you will likely need to add other risks distinctive to your company and industry.
Developing the program
Recognizing risks is only the first phase. To truly address threats under your ERM program, you will need to clarify what your company’s appetite and capacity for each risk is, and develop a cohesive philosophy and plan for how they should be handled. Say you are about to release a new product. The program would need to address risks such as:
- Potential liability
- Protecting intellectual property
- Shortage of raw materials
- Lack of manufacturing capacity
- Safety regulation compliance
Again, the key to success in the planning stage is conducting a detailed risk analysis of your business. Gather as much information as possible from each department and employee.
Depending on your company’s size, engage workers in brainstorming sessions and workshops to help analyze how specific events could alter your company’s landscape. You also may want to designate an ‘ERM champion’ in each department who will develop and administer the program.
Yes, just as medieval soldiers were wary of incoming dangers, you and your employees must maintain a constant gaze for developing risks. An ERM program, while an ambitious undertaking, can provide the structure for doing so. We can assist you in managing risks to your business in a financially sound manner.