The Rewards of Enterprise Risk Management
“There is no substitute for accurate knowledge. Know yourself, know your business, know your men”
A well-developed enterprise risk management (ERM) framework provides a significant competitive advantage in today’s marketplace. In fact, the Committee of Sponsoring Organization of the Treadway Commission’s (COSO) definition of ERM emphasizes this strategic component. ERM is to be applied in the strategic setting with an ultimate goal of contributing to the achievement of the entity’s objectives. However, not all firms that have extensive ERM programs take advantage of the knowledge that their ERM framework provides.
There are three critical areas where your ERM Program contributes to developing competitive advantage:
- Quantifying and qualifying your risks, understanding your unique risk profile including risk appetite and risk tolerances, helping you evaluate and take advantage of opportunities in the market place
- Aligning your growth strategy to core strengths and understanding of competitor weaknesses based on the risk profile and the competitive environment
- Measuring and setting business plans and budgets, and aligning them to risk metrics to ensure key performance levels are met and in line with growth plans and strategies
By aligning the components of risk management and measurement to a cohesive strategic plan, a company can navigate and thrive in an ever changing market and competitive environment. However, the process of creating a consistent approach involves the alignment of three key internal components: An ERM framework, available technology and data, and expertise with monitoring key metrics.
Most companies have these components to some degree, but may not have the right integration strategy, data analysis, or strategic goal alignment to truly take advantage of the accurate knowledge that an ERM program can provide. With the proper approach and expertise, current frameworks and in-house data can be aligned to make a company a forward thinking and strategic innovator, rather than reactionary.