Business risks pose the greatest threat to your profitability. Instead of earning profits, your business could end up paying up in compensatory damages and compliance penalties. Let’s say, for instance, you make a product that doesn’t do what it’s supposed to. In that case, the product’s end users may take you to court. Similarly, if you’re running a tech company, several malicious actors can compromise your product with cyberattacks and ruin your credibility. All these are instances of risks that can affect your company’s brand, performance, and profits. That’s why we have enterprise risk management (ERM) – a way to avoid the pitfalls and risks that less vigilant companies routinely face.
In this article, you’ll learn about ERM, the ways you can safeguard your business using ERM, and the tools you may need in the process.
First, let’s start with the concept of ERM.
What Is Enterprise Risk Management (ERM)?
ERM is the strategy and process used to manage a company’s risk from internal and external threats.
In all aspects of your business, you must identify risk and classify it. Then, you should work to reduce it through risk management strategies.
ERM is an iterative process. Change is always taking place as businesses continue to grow. But not all changes are good. Using risk reduction or mitigation strategies, you can reduce the impact of adverse changes.
The true aim of a business is to make money – and lots of it. However, if your expenses are spiraling out of control, you can’t expect to reach your financial goals. The recipe for sustained business growth is to make more profit and ruthlessly cut down on expenses.
Of course, your business can’t grow forever. The growth rate reduces after a certain point, and you’ll start to get diminishing returns. But if you plug your losses through enterprise risk management, you can increase throughput and find more opportunities for improvement.
Just stop and think about it. If your company fails to improve upon its inefficient processes and is constantly embroiled in one court battle or another, how can it meet its growth targets?
To combat these risks, you need to use ERM program goals to create a coherent, enterprise-wide strategy.
ERM Program Goals
An ERM program starts with the following five steps, which are iterated and refined over time to account for the changes occurring in any business:
- Define business insights and enterprise transparency policies.
- Create natural ownership, define risk appetite, and implement a risk strategy.
- Scope how risk-related decisions are handled.
- Define and implement risk-governance policies.
- Create a risk culture and bring about performance transformation.
You must review and update the above steps during internal evaluations through tracking, monitoring, and auditing.
Next, the ERM process needs to have core components. Let’s take a look at what they are.
Core Components of ERM
The core components help you define and manage the implementation of the ERM steps mentioned above. Going through these, you’ll realize the importance of ERM for your business. You’ll also see why you need to implement it in every facet of your business.
Generally, we can go through the ERM core components in a top-down manner. Let’s go through these 3 elements:
1. Top-Level Components
First, you need to define business and IT objectives to ensure they align with your business’s mission. Defining objectives will help create seamless and optimized workflows. It’ll also let you document different work-related processes.
Documentation is less obvious for business success. However, it’s still critical for your business’s future growth. It also helps keep the risks out of your systems.
All changes should follow a formal change management process. This process includes user workflows, platforms used, and even configuration changes. Additionally, no change should be allowed to bypass due business process, even during crises.
You also need to define the company’s risk appetite. Some companies are risk-tolerant – in fact, even risk-seeking – and can generate income through valuation changes. Here, you must understand your enterprise’s risk appetite and proceed from there.
Culture and governance must also align with and incorporate ERM. Risk management is always conducted from the top down. However, the proper implementation of ERM requires every employee to adopt and own its principles.
For proper implementation, make sure you involve your employees in the process.
2. Control Components
ERM assesses compliance and control requirements. Either self-imposed or regulatory, an ERM takes all legal compliance into consideration. Failure to meet these could mean profit loss, client attrition, violation of contracts, and worse, even jail time for the management.
Measurement and reporting offer insights into business metrics. Proper measurement and reporting will help you ascertain your current position. Further, you can set measurable goals to shoot for when you have actionable data in hand.
If you aren’t assessing your progress daily, weekly, monthly, and yearly, how will you know if you’re on the right track with your business goals?
3. Organization-Wide Components
Business mission statements often define an organization’s code of conduct.
However, a code of conduct is often top-level, and it has general guidelines for an organization to follow. As a result, you can’t apply it as it is to processes or workflows. You’ll need to add more detail or interpretation.
You need a dedicated code of conduct that also includes risk considerations. Additionally, objectives set out in the mission statement need further explanation about risks.
You must also conduct risk assessments in all areas of the business. How likely is it for a risk to occur, and what would be its severity? This assessment will clarify whether continuing a task is worth the risk that it brings. It also enables you to prioritize risk reduction tasks when processes are ongoing.
Once you’ve assessed a risk, it’s time to identify and define a risk response and mitigation strategy.
Here’s what you need to know when considering a risk response.
How to Consider Risk Response
Most companies use the Pareto analysis to target the ‘worst’ risk first based on its severity and frequency.
Moderation is key when it comes to responding to risks. Over-tweaking a solution will impact your bottom line and will lead to resource waste. If you can use a less aggressive approach, then you should.
Risk response and mitigation outcomes rely on good information and communication.
You should inform users of the risk response, so they’re aware and cease all activity that could affect the outcome.
Likewise, notify management of issues that have already been logged. To this end, use a formal notification channel. It’s also important to keep records for risk audits later.
Poor communication allows room for new risks to emerge. When risks evade detection or are overlooked, they could lead to catastrophic failures for the organization. Additionally, problems will keep on festering, and they’ll eventually become less manageable.
When a business grows over time, it introduces new processes and equipment into its workflows and operations. A monitoring and call-to-action response usually works around a centralized change management process. This restricts end users from arbitrarily changing or sidestepping business processes.
Now that you know the core components of ERM, let’s define some ERM best practices.
ERM Frameworks and Best Practices
You need to use industry-standard frameworks and best practices, selected from established sources. Each business and sector needs a tailored business ERM strategy.
Here are a few common ERM frameworks and best practices you can use as a starting point for creating your own ERM strategy:
Regulatory compliance is vital for any business. Companies found guilty of regulatory violations are as good as dead in the business world.
Now, we’ll look at some software solutions you can use to implement ERM.
Top 3 Enterprise Risk Management Solutions
Below are the top three ERM software solutions in the market today.
Let’s start with GFI LanGuard, which offers the best network security solutions of them all:
1. GFI LanGuard
GFI LanGuard is a low-cost solution for automated patch management and security updates. These solutions are trusted by 30,000+ systems.
LanGuard creates and manages end-point protection across your entire network. You also gain better visibility of your network’s health through a centralized console.
LanGuard also creates a user-friendly environment that ensures you can easily keep your network protected by:
- Detecting all network hardware automatically, including mobile phones and connected devices.
- Grouping devices and creating a better management experience by specifying security intent.
- Scanning your network for missing patches.
- Finding security gaps in Windows, macOS, and Linux systems.
- Discovering security gaps in third-party software and web browsers.
- Identifying over 60,000+ non-patch vulnerabilities.
- Finding open ports and system information about users that are exposed to the internet.
LanGuard allows you to meet Payment Card Industry (PCI), Data Security Standard (DSS), Health Insurance Portability and Accountability Act (HIPAA), and SOX compliance standards through its reporting system.
In short, GFI LanGuard is an effective solution that can help you oversee your enterprise risk management plan. It also ensures your compliance with regulatory or de-facto industry standards.
Gartner’s LogicManager is designed to manage ERM across discrete silos. LogicManager’s bucket approach to risk helps quickly identify areas of the business exposed to risk, so you can swiftly deploy the right risk mitigation strategies.
Further, siloing risks helps with risk auditing later on as well.
LogicManager breaks up the ERM process into the following:
- Policy and governance
- Incidents and events
The siloed structure is logical and easy to comprehend, which reduces a new user’s learning curve.
You also can manage everything through a centralized risk-management hub that can be operated from anywhere. The centralization helps with easy implementation and control of operational security (OPsec).
The software has excellent ERM support; the ERM consultants ensure you don’t let any risk into your system.
LogicManager also adheres to GRC best practices. However, it doesn’t cover all the specific auditing standards used in different sectors.
That means you’ll have to spend more time preparing audit reports when working in LogicManager than you would when working in LanGuard.
Onspring is a GRC (Governance, Risk, and Compliance) software solution. It’ll save you 70% of your time managing policies, 40% of it when completing audits, and 33% when growing your company.
Onspring enables you to:
- Build control libraries
- Automate assessments
- Evaluate risk on a holistic level
- Monitor in real-time with a cloud-based centralized monitoring system
Reporting includes real-time data collection and output in the form of tables, graphs, and maps to get you to the details faster.
Automate workflows across teams and divisions to save time. Send automated SMS, email, and Slack messages to achieve better communication and take everyone in the team onboard regarding ERM strategies.
In addition, Onspring handles ERM-related tasks, which makes it an effective platform for GRC tasks.
Moreover, you can auto-populate data to save time in record-keeping, and set permissions on documents to ensure smoother workflows.
Onspring is a great solution for GRC requirements. It also supports controls that stop users from bypassing change management operations.
However, it doesn’t directly integrate change management tools. Companies have to use their own solutions for managing change.
Your business can grow only if it can control and manage risks effectively. To reduce or mitigate risk, you need an ERM solution that complies with the industry’s best practices. We’ve identified traits of a pragmatic ERM solution and the top three enterprise risk management solutions in the market today. Using these solutions will cut back on wasted time, as they will automate risk management and reporting. Implementing an ERM isn’t easy, but it’s worth the effort because it ensures timely and effective flagging of risks as they arise.
Do you have more questions about enterprise risk management? Check out the FAQ and Resources sections below!
What is ERM?
Enterprise risk management (ERM) is the process of assessing and managing risk within a business. Frameworks include legally mandated requirements, auditing protocols, and de-facto best practices within the industry. Failure to implement effective ERM strategies increases liability expenditures due to costly mistakes, retarding business growth.
What compliance standards do I need to consider to meet ERM objectives?
Depending on your business, enterprise risk management (ERM) needs to comply with the following: Payment Card Industry (PCI), Data Security Standard (DSS), Health Insurance Portability and Accountability Act (HIPAA), and SOX compliance standards. Many of these are regulatory requirements and legally enforced. However, you may also need to comply with your industry’s de-facto requirements to become part of the value chain.
What is SOX compliance, and how does it help ERM?
Sarbanes-Oxley (SOX) Act compliance for publicly traded companies reduces your risk for stock manipulation through auditing and security implementation. Failure to comply with SOX can mean prosecution and even jail time for the business leaders and board members. The consequences still stand if the board members claim ignorance of the compliance rules pertaining to accurate performance and data reporting.
What can the COSO framework offer ERM?
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework provides you with a strategy for defining, reducing, and monitoring a company’s risk. It first sets defined top-level policies and governance structures. Then, it applies those across divisions, teams, and employees in a top-down approach.
How can I automate ERM to save time each year conducting regulatory audits?
You don’t need to apply enterprise risk management (ERM) manually. You can use any number of ERM solutions to help automate ERM workflows, including auditing, which will save you time and money. GFI’s LanGuard allows you to meet Payment Card Industry (PCI), Data Security Standard (DSS), Health Insurance Portability and Accountability Act (HIPAA), and SOX compliance standards.
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