Many companies are increasingly turning to ERM to exercise greater control over their business and to gain a competitive advantage. Companies have begun to invest more in formal Enterprise Risk Management solutions, but often a poor implementation strategy has resulted in mixed results.
Although an ERM solution provides many benefits, the organization needs to be wary of the pitfalls on the path to successful implementation.
For organizations to avoid costly mistakes, ERM needs to be planned thoroughly and positioned strategically with a great deal of care. Here are a few Pitfalls and suggestions on how an organization can avoid them.
Lack of control
ERM is cross-functional within an organization. Therefore, the program needs the support of someone with authority to collaborate with various functional managers. The senior leader in charge should set regular meetings with the key stakeholders. This helps to avoid the wrong approach to a challenge. It also prevents failure in the attempt to capitalize on an opportunity that would increase the value of ERM. As the function matures, the frequency of meetings can be tapered down.
The idea of ERM not soaking deep into the organization
Enterprise Risk Management leaders often seek support for the risk management program from the executive board and the leadership team. Despite garnering the required support, heads of ERM often encounter a lack of enthusiasm from business unit leaders. This poses a huge barrier to success.
It is ideal to involve the top management first, and then absorb business leaders and employees into the ERM process. As a result, it is critical to generate awareness among all the employees to get the most from the program. ERM requires a good amount of time and effort from the resources within the company. The time required for all participants must be considered while planning and assigning tasks.
Lack of training
There is a technical difficulty in the Enterprise Risk Management execution. Failures during the execution of a program have become commonplace since companies have been overlooking the significance of guided training to enable a successful implementation. Training should be delivered in stages – the leadership team should be meticulously trained by a process and product expert during the various stages of an implementation. A methodical approach has to be taken to achieve the company’s vision and mission. Once complete, a second level of training can be introduced among the rest of the companies’ staff.
Tracking and reporting too many risks
Upon completing risk identification and assessment, it is critical that the organization concentrates on monitoring the most important risks. Organizations easily fall into the trap of tracking too many risks at an early stage. It is highly important to focus on the most potent threats. The board and executives have to identify the most dangerous risks to continuously monitor and educate the second-tier managers about the appropriate level of analysis to be undertaken.
Striving for success too early
Several organizations undertake premature attempts at ERM’s advanced capabilities and try to establish ERM as a quantitative exercise too early. This way, the capabilities of ERM are undermined across the firm. Businesses should begin by concentrating on the basics that include risk assessment and control evaluation; this ensures that the treatments are in place and the top risks are continuously monitored and reported to senior stakeholders.
An ERM system can be a very useful tool for every enterprise. There are significant benefits of implementing ERM, but the pitfalls that you can fall into are many. If you can avoid the common pitfalls, ERM implementation is likely to be a game changer for your organization.
Possible pitfalls can be high profile. A considered and careful approach is a must and will guarantee the ERM implementation is a success, enabling an organization to reap the resulting benefits.
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