Fundamentals of Enterprise Risk Management Summary
4 min read ⌚
How Top Companies Assess Risk, Manage Exposure, and Seize Opportunity
One of the most important things you need to know in business is how to manage risk. It is impossible for a company to survive in a completely risk-free environment. In fact, some risks are worthy of taking.
But how can you know which ones? And what does risk management really imply?
Because, we tell you, insurance is not all there is to it.
Continue reading and find out why and how smart companies employ ERM techniques.
Who Should Read “Fundamentals of Enterprise Risk Management”? and Why?
Managing corporate risk entirely and adequately is more than just ensuring against floods, fire, and other environmental catastrophes. Companies frequently have exposure to loss from rapid technological advancement, financial instability, fierce competition and regulatory sanctions.
That is the reason why entrepreneurs started accepting enterprise risk management (ERM) into their operations.
ERM allows them to flexibly define, assess and respond to the corporation’s sum of risks,
Not all risks are dangerous, many of them are worth taking. Companies that have adopted ERM can find out which calculated risks would bring them increased profit and sales, with minimal hazard.
John J. Hampton presents the “Fundamentals of Enterprise Risk Management” and gives you a customizable model of ERM, which can fit each company, no matter its size.
We recommend this to all managers and entrepreneurs out there, who want to find out how they can work smarter, differentiate good from bad risks, and cope with risky scenarios as best as they can.
About John J. Hampton
John J. Hampton teaches business and is a director of graduate business programs at St. Peter’s College. He is a former director of the Risk and Insurance Management Society.
“Fundamentals of Enterprise Risk Management Summary”
Amid the 70s, organizations extended their risk management practices from guaranteeing against risks to propelling inside loss control activities. For instance, they assessed safety changes at assembly plants to decrease accidents happening in the working environment.
Furthermore, a few organizations began to substitute the broader corporate title of risk manager for the more traditional title of insurance manager.
In ensuing years, corporate leaders have continuously put more consideration on corporate risk. Corporate risk does not exist in isolation, but rather an organization’s aggregated vulnerability.
By the late 90s, some enterprises had begun to direct enterprise risk management (ERM).
They did so through reassessments of identified dangers, scans for poorly defined threats and regular examination of commercial possibilities that held more benefits than negative potential.
Nowadays, risk management covers moderating the risk of physical perils, following government regulations, and keeping up internal controls and reviews. However, apart from these elements, powerful ERM frameworks can take up a wide range of forms.
This means that the ideal approach to managing corporate risk is different from firm to firm.
As a result, dealing with the uncountable variety of dangers in the business world is one of ERM’s most noteworthy difficulties. Even inside the same industry, no risk-control formula successfully works for each organization.
Another important thing you should note is that not all risks are the same. There are risks you can accommodate, and there are ones that you should avoid.
To figure out the kind of risk it is facing; an organization must assign an interior monitor, which can be either an individual or a group, to play out the “central risk function.”
What exactly do we mean by that?
This activity includes recognizing and evaluating every one of the hazards the organization faces. The interior monitor conveys material findings to executives and managers, and to those who are doled out to test specific dangers in their area of expertise.
It is vital to create cooperative energy, outline and execute an ERM framework that lines up with your firm’s current division of managerial assignments, so it blends into the business as opposed to troubling its managers with new requests.
Make sure you structure your ERM framework to utilize a similar procedure to survey all risks and to guarantee responsibility among assigned workforce for the way they oversee specific dangers.
Finally, for an ERM framework to work, the top executives must take a role of dynamic leadership during the process of risk determination and management.
Key Lessons from “Fundamentals of Enterprise Risk Management”
1. Software for ERM Applications
2. Five Risks That Call for a Team Approach
3. The Dynamic Risk Landscape
Software for ERM Applications
Big companies frequently install software to support ERM before they implement it in practice. Some ERM software programs enable organizations to create a visual image of risks on the screen, as a helpful tool for monitoring and prioritization.
Managers can use such tools to assess which risks are worthy of taking, to determine the interrelationships among hazards, to mitigate exposures to losses, and document their progress.
Five Risks That Call for a Team Approach
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- Strategic risk
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- Leadership risk
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- Subculture risk
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- Business cycle risk
- Horizon risk
The Dynamic Risk Landscape
Risks continuously change in size and shape. Some established risks decrease in importance as new ones appear. The emergence of the internet permits new types of misbehavior that expose companies to harm, including malicious hacking into business computer systems and the spread of malicious viruses. Regulatory changes also have altered the risk landscape.
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“Fundamentals of Enterprise Risk Management” Quotes
Enterprise risk varies with the line of business, the nature of the entity, political and economic issues, and other factors. Click To Tweet Organizations must implement ERM to prove its value, but management often expects the value to be proven prior to implementation. Click To Tweet External risks are largely uncontrollable, as they arise from the competitive environment, economic factors, acts of regulatory bodies and other outside sources. Click To Tweet Is risk management an art or a science? Taleb says it is an art because execution is involved. We can replicate scientific efforts. Risk management varies with each challenge. Click To Tweet Strategic risk covers a lack of vision, faulty planning, emerging or aggressive competitors, and the inability to respond to changing conditions in the business environment. Click To Tweet
Our Critical Review
ERM will not entirely eliminate risk. In fact, nothing can completely get rid of risk. However, John J. Hampton notes that a detailed, disciplined approach is critical if you want to make an ERM framework work and give results.
