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The Business Benefits of Enterprise Risk Management (ERM)
Governance, Risk and Compliance
Modified March 16, 2022 By Resolver
There are a number of strategies businesses can use to succeed - the development of innovative products, offering more value to customers and clients than competitors, streamlining operations to minimize production costs, etc. While these approaches are no doubt key to achieving success, another way to maximize earnings before interest, taxes, depreciation and amortization (EBITDA) is to embrace enterprise risk management (ERM).
For many years, discussing risk was almost seen as being taboo among corporations. To succeed today, companies are beginning to slowly expose themselves to higher degrees of risk. As a result, these organizations are devoting more resources to monitoring and managing these risks. Aligning risk management and internal control activities is pivotal for bolstering overall business.
This is where enterprise risk management comes into play. ERM is a scalable approach to traditional risk management that combines risk information from across an organization. This data is then used to help companies meet business objectives, drive growth and bolster performance. With ERM, risk culture also becomes more prevalent as corporations embrace risk culture. It's largely a matter of siloed versus broad views - traditional risk management is focused on individual departments, while ERM takes the organization as a whole into consideration.
How Enterprise Risk Management (ERM) Benefits Your Business?
ERM brings a lot to the table for any company looking to become more successful. From better access to capital to a reduction in manual reporting time, ERM can benefit corporations in a variety of ways.
1. Increased access to capital
Organizations that include a measure of ERM in their evaluations have shown better ability to pay off their financial obligations. That means institutions and creditors are more likely to lend money to these companies.
2. Reduction in manual reporting time
"Implementing a single or integrated ERM software system, or reducing the number of places where risk data is held, means that risk data can be consolidated, analyzed and reported in a predominantly automated fashion, reducing the number of man-hours (and, therefore, cost) associated with the reporting process," an Active Risk report notes.
3. Reduced insurance premiums
For companies that need a lot of insurance, ERM can understandably be used to reduce these premiums. Insurers want to be sure there are controls in place within a company to manage key risks. The more robust the controls, the more likely an insurer will review premiums and reduce prices.
For many companies, ERM integration comes down to the value proposition: Does an ERM solution provide value to their business? As research from Poole College of Management notes, determining the value of something such as ERM can be challenging, which means it's up to the risk management department to convey the benefits to executives.
"A lack of understanding of the benefits of ERM and difficulty in proving the business case for ERM reported as the two most significant challenges," the report adds. "It can be difficult to prove the business case for ERM because benefits and costs are all difficult to quantify."