Looking to Measure the Effectiveness of your ERM? Read on

Organizations are becoming increasingly aware of the value of managing risks. And the regularity with which financial disasters seem to be hitting the markets, certainly has companies convinced that performing in business is not possible without taking risks.

Enterprise Risk Management (ERM) helps an organization counter risks and other critical issues. ERM enables recognizing events that achieve a certain objective. This, in turn, leads to identification of opportunities or risks. Companies understand the importance of ERM and therefore initiate a strategic risk management program. But do they measure its effectiveness?

Successful ERM helps a business achieve its objectives constantly. But often, irrespective of its design and execution, does not guarantee an organization full success. The ability of meeting objectives is also influenced by the restrictions that are intrinsic to all business processes. ERM does not convert a fundamentally poor process into a good one. Risk management is the conscious balance of goals with the quality of output. It is therefore, extremely critical to strategically align ERM with business performance and effectively measure its effectiveness.

Here are a few pointers that will help you measure the value your ERM program is providing:

Systemic risk identification
Systemic risk identification detects areas of dependencies across the organization, and identifies the area that is naively causing damage to other areas. Systematic risk identification could also identify areas that would benefit from other departments, thereby eliminating separate activity controls for the benefiting area and increasing organizational efficiency.

Proactive involvement of process owners in risk assessments

ERM cannot be done in silos since it is of a cross-functional nature. Similarly, a risk event in one functional area also bears effect on other functional areas within the business. Process owners and risk managers own the risk, timelines, and accuracy of the risk information. The greater the involvement of process owners in risk assessments, the higher will be the precision of information collected. That is immensely valuable.

Determine a tolerance level

Determining a uniform tolerance level and assessing risks on standardized criteria throughout the organization substantiates the value derived out of the ERM program. This helps prioritize resources to risks in need of additional attention. This analysis at a particular tolerance level will also help identify emerging risks and determine whether the mitigation activities in place are sufficient.

Regular risk assessments

By using risk assessment, and connecting risks to mitigation activities, organizations can prioritize activities that need immediate attention and supervision. With regular risk assessment, businesses can perceive amplified threat levels to identify up-and-coming risks before they materialize and push business metrics outside limits.

Looking to Measure the Effectiveness of your ERM? Read on was last modified: November 3rd, 2014 by Fadi Al-khatib
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Fadi Al-khatib

Manager at CAREWeb
Fadi has BA degree in Accounting, and he is a Certified Operational Risk Executive. He has more than three years practical experience in the field of internal audit in one of the biggest banks in Jordan Before joining Grant Thornton in 2008 as a Senior Consultant, where he has conducted audit assignments in several companies, branches and business units.  Fadi has participated in the preparation and execution of many CRSA workshops and the implementation of Operational Risk Management systems for large clients in various industries.