Ibe Erm Unit 3

ERM
• Enterprise risk management (ERM) is the process of

planning, organizing, directing and controlling the
activities of an organization to minimize
the harmful effects

of risk on its capital and earnings.
• ERM is designed to manage and identify risks across
an organization and its extended networks.
• ERM is a holistic approach to managing risk, which
requires a broad management-based approach.
Types of Risk:
1.Financial Risk
2. Operational Risk
3. Legal Risk
4. Strategic Risk
Features of Effective ERM:
1.Comprehensive Approach:
Good risk management doesn't just focus on
money-related risks. It looks at all kinds of threats
that could affect the organization.
This ensures a holistic view of the risk landscape
and prevents businesses from focusing only on one
area of risk at the expense of others.
Overall Risk Management by Organization.
2.Proactive Management:
• Staying ahead in risk management is about noticing
and handling risks. It must be done even before they
turn into actual problems.
• This proactive approach helps businesses to make
plans to lesser the impact of risks and prevent big
losses.
• By being ready for trouble before it happens,
businesses can dodge problems, save money, and
protect their reputation.
3.Enterprise-Wide View
Risks rarely exist in isolation. A good plan through
enterprise risk management software looks at how
one problem can affect different parts of a company.
For instance, a cyberattack not only messes up
computer stuff but can also leak customer info and
cause legal trouble. So, everyone in the company
needs to work together to see all the risks and make a
plan.
4.Data-Driven Decisions:
Data is the cornerstone of effective risk management.
ERM software helps businesses gather, study, and
understand risk information.
This helps them make smart choices about reducing
risks and deciding where to focus resources. By using
data to make decisions, they can focus on the big risks,
plan how to handle them, and improve their overall risk
management efforts.
5.Continuous Improvement:
The risk landscape is always changing. New dangers pop
up, and old ones shift their shapes. An effective ERM
program is not a one-time activity. Businesses must
regularly check and improve their risk management
plans to keep them working well.
This means doing regular checks to spot new risks,
keeping an eye on what's happening in the industry, and
changing plans to deal with risks better when needed.
Tools or Elements of ERM
1.Centralized risk register
A centralized recording and tracking all identified risks. This means that all
risk-related information comes from one reliable place. It makes it easier for
different parts of a company to talk to each other about risks.
2.Automated risk assessments:
Tools to evaluate the likelihood and potential impact of each risk. This helps
businesses prioritize their efforts and allocate resources effectively.
3.Data analytics and reporting:
These features are like tools that businesses use to examine data
about risks. They identify patterns in data, offering insights into the
business's overall risk situation.
4.Workflow management tools:
These enterprise risk management tools assign responsibility and
monitor progress on risk reduction plans. They ensure accountability and
prompt action.
5.Collaboration features:
Communication and information sharing are crucial for effective ERM.
Collaboration features aid department communication, aligning efforts
toward shared goals.
Steps in the Enterprise Risk
Management (ERM) Process
1.Identify Risks
The first step in the ERM process is to identify the

potential risks (and opportunities) that may affect
the organization’s objectives.
This step involves recognizing internal and
external risks that may arise from various sources
such as operations, financial, regulatory, legal,
reputational and strategic risks. Identifying new
risks is key to managing what is on the horizon.
2.Assess Risks
The second step in the ERM process is to analyze or assess the risks that have
been identified. The goal of the assessment phase is to understand what problems
or opportunities a risk might cause and to determine the magnitude of the risk for
prioritization in a later step.
When assessing and rating risks, the following factors are considered.
• Likelihood
This factor measures the probability of a risk event occurring.
• Impact
This factor measures the potential consequences of a risk event.
• Velocity
This factor measures how quickly a risk event can materialize and cause harm.
• Preparedness
This factor measures the organization’s level of preparedness to handle the
risk.
3. Prioritize Risks
• Based on the risk assessment, the next step is to
prioritize the risks based on their level of importance
to the organization’s objectives. This step involves
determining which risks require immediate attention
and which risks can be managed over the long term.
4. Develop Risk Mitigation Strategies
• After prioritizing the risks, the next step is to develop risk management
strategies that align with the organization’s objectives. This step involves
developing a risk management plan that outlines how the organization
will mitigate, avoid, transfer or accept each risk.
Common strategies for mitigating risks in ERM include the following.
• Acceptance
Accepting the risk and its consequences, either because the risk is too
difficult or too expensive to mitigate, or because the potential benefits
outweigh the potential consequences.
• Avoidance
Avoiding the risk entirely by not engaging in the activity that could result in
the risk.
• Reduction
Reducing the likelihood or impact of the risk by implementing risk
management controls or safeguards. This could involve implementing
security measures, redundancy systems or establishing procedures and
guidelines.
• Transfer
Transferring or sharing the risk to another party, such as through
insurance or outsourcing to a third-party provider.
• Exploitation
Actively seeking opportunities to take advantage of the positive aspects
of a risk, such as a new market opportunity or emerging technology.
5. Implement Risk Mitigation Strategies
• The next step is to implement the risk mitigation

strategies identified in the previous step. This
step involves putting in place the necessary
processes, policies and procedures to manage
the risks identified.
6. Report, Monitor and Review :
The final step in the ERM process is to report,
monitor and review the effectiveness of the risk
management strategies implemented. This step involves
continuously monitoring the risks, evaluating the
effectiveness of the risk management strategies, adjusting
the strategies as necessary and reporting the results in a
timely manner to be useful in strategic planning.
Strategic Risk Assessment
• A strategic risk assessment is a systematic, continuous process

for organizations to identify its strategic risks and understand
how those risks are being managed across the business.
• strategic risk assessment process should be led by
management
Process to do Strategic Risk Assessment

Ibe Erm Unit 3

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ERM

• Enterprise risk management (ERM) is the process of

the harmful effects

The first step in the ERM process is to identify the

• The next step is to implement the risk mitigation

• A strategic risk assessment is a systematic, continuous process

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