Enterprise Risk Management (ERM) underpins so much of what it takes to run a successful business. When your risk management is handled professionally, you can reap the benefits – as we’re sure you’ve heard before.
But what exactly are those benefits? And if you aren’t yet fully invested in ERM, what are you missing out on? That’s what we are looking at in this article.
Risk management at a corporate level is a way of aggregating risk from projects and across the business to ensure there’s a single, effective process. It ensures there are the tools and systems required to identify, analyze and take active steps to manage risk. It also ensures there is a risk management culture that helps you carry out action plans with the full support of the relevant teams.
Let’s look at the benefits your business can expect from adopting a mature approach to enterprise risk management.
The first major benefit we see when we start working with clients on their risk management processes at enterprise level is that there are sometimes unexpected financial benefits.
Risk management might sound like a corporate overhead, but done correctly, it’s actually all about saving you money. Good risk management processes can lower your operating costs as you are managing efficiently.
If you can evidence what you are doing, you might also be able to reduce the cost of any funding you need. The organization can keep capex spend under control more easily because there are fewer problems that need a pay out at short notice. Instead, you’re managing corporate expenses more effectively, planning and taking action before risks become problems.
As a result, companies using enterprise risk management can see improvements in profitability.
Second, we see improvements in corporate governance. Typically, companies that embrace enterprise risk management benefit from increased corporate governance, in a good way! Part of implementing a corporate approach to risk management is carrying out stakeholder training. That helps people connect the goals of risk management to their actions and gives them practical things they can do to contribute to the objectives.
There’s less ‘governance for the sake of it’ and a deeper, engaged commitment to tackling risk at the enterprise level. That’s where culture comes into play – it’s really important that risk management becomes embedded in the way people do their jobs and is not seen as some kind of add on optional extra for management.
As a result, companies are able to evaluate all the significant risks they might be exposed to, which in turn leads to better planning and ultimately fewer unforeseen issues. The board, or your executive team, get to see a consolidated view of everything facing the business so they can make better decisions about where to invest and what projects to begin.
A further governance benefit is that you’ve got evidence for regulators, and keeping your industry regulatory bodies happy is important for all kinds of reasons.
3. Reputation and Brand
The final category of benefit is in the area of reputation and brand management. You only have to scroll through Twitter or check the news headlines to see that it doesn’t take much for a company to attract publicity for the wrong reasons.
A strong approach to risk management can improve the perception of your brand and contribute to improving value for shareholders. As you are mitigating and managing risk, you can show you are proactively engaging in professional business practices and doing your best for customers.
There are also benefits for other stakeholder groups too. Staff and suppliers also benefit, and we often see an increase in engagement and morale because the company is investing in ‘doing things properly’. Plus, there are fewer fires for staff to put out!
You already know that a strong brand reputation contributes to greater customer satisfaction which in turn leads to more repeat business and higher customer spend. It’s all connected, and while there are many, many things that influence employee engagement and customer behavior, risk management is often overlooked as a contributing factor.
The benefits of risk management are related to:
- How good your risk information is
- How robust your processes are
- How much confidence people have in the process
- How willing people are to follow the process and work together to identify and manage risks.
In other words, you can only expect to see the benefits of enterprise risk management once you’ve got the foundations right. If any of those components let you down, you might not get the financial, governance or brand results you were expecting.
Enterprise risk management is a journey. You can constantly review and improve your practices, deepening the organization’s approach and maturity levels. As you grow in your own experience, and draw on experts from outside your business, you’ll see efficiency improvements, greater project success rates and a competitive advantage.