Risk management is the systematic procedure to discover, analyze, assess, treat, and monitor risk in an organization to diminish the unfavorable effects of loss. For such methodical process, it is imperative to have a strong risk management strategy in place, in order to augment business success and benefits.
Although losses and risks are unexpected and ad hoc, having a logical strategy in place makes such events more predictable. If an event is more predictable, the risk involved is much lesser, since the incident can prevented or alleviated. At least, the expenses can be estimated and planned.
A well thought out ERM strategy assists leaders of an organization in tackling risks at a critical moment as opposed to dealing with them when it is too late. With the deployment of a risk management strategy, risk officers will be able to mitigate or act on opportunities based on the risks involved. Furthermore, a clear strategy in place aligns the organization’s culture with the performance and risk management methodology.
A few key advantages of having a sound ERM strategy in place:
Encouraging discipline in a process
A strategy helps achieve organizational objectives with a clear grasp on business realities. It also helps understand the term “risk” and deploying risk management comprehensively. With an ERM strategy, an organization can define, in a disciplined manner, the importance it places on risk management.
Effective positioning of risks
A logical strategy helps in executing effective risk management programs that enable collaboration between risk professionals and the management, leading to a risk culture desired by the board of directors. It helps to identify and categorize risks based on the severity of the resulting impact.
Establishes a learning curve
With an ERM strategy, risks are discussed and acted upon, resulting in knowledge growth and improvement in policies and processes. Additionally, lessons learnt outside the organization provide opportunities for leaders to apply the circumstances to their own organization.
Helps focus on key assumptions
Circumstances are continuously changing in today’s unpredictable business environment. Therefore, understanding risk requires logical and habitual challenging of fundamental assumptions in the organization. A risk-intelligent strategy can support leaders to challenge their own assumptions, eventually helping the organization to seize the competitive advantage in the market.
There are several other advantages that a solid strategy brings to the organization in enterprise resource management. A logical strategy helps identify signals that point to the occurrence or emergence of unforeseen events, and in turn classify these events as ‘good’ or ‘bad’ for the organization.
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