Enterprise Risk Management vs. Traditional Risk Management: Choosing The Best Approach For Your Organization

April 28, 2023 · READ

In today’s fast-paced business environment, companies face a wide range of risks that can impact their operations and bottom line. The conventional approach to risk management relies heavily on spreadsheets and manual processes and is becoming less common. To stay ahead of the curve, many organizations are now turning to technology-driven solutions to modernize their risk management program.

When it comes to enterprise risk management vs. traditional risk management, it’s important to note that both work to mitigate risks to an organization. However, there are significant differences between these two approaches. But first, let’s go through exactly what each type entails.

What is traditional risk management?

Traditional risk management (TRM) focuses on managing risks in a specific area or department of an organization. For example, a manufacturing company might have a risk management team focused solely on safety risks on the factory floor.

With regards to enterprise risk management vs. traditional risk management, TRM tends to be reactive, with an emphasis on mitigating risks that have already been identified, rather than proactively seeking out new risks. The focus is on minimizing the impact of risks on a specific area or department, rather than on the organization as a whole.

What is enterprise risk management?

Enterprise risk management (ERM) is a holistic approach to identifying, assessing, and managing risks that an organization may face. From operational risks to strategic risks, ERM seeks to integrate risk management into all aspects of an organization’s decision-making processes. It involves a coordinated effort across the entire organization to identify potential risks, assess their impact, and develop strategies to mitigate or manage them. When considering enterprise risk management vs. traditional risk management for your organization, one key difference is that ERM helps companies anticipate and manage risks, thereby protecting their reputation, assets, and long-term success.

How does enterprise risk management differ from traditional risk management?

With the help of advanced software and tools, ERM helps companies can automate key risk management processes, gather real-time data, and make more informed decisions that enable them to identify and mitigate risks before they become serious threats. The benefits of modernizing risk management through technology are numerous and can include improved efficiency, greater accuracy, enhanced visibility, and better risk insights.

When looking at enterprise risk management vs. traditional risk management at a high level, it’s important to note that both seek to identify, assess, and mitigate risks to an organization. However, the two approaches differ significantly in their methodologies and outcomes.

Some of these differences include:

Use of data

TRM often relies on subjective assessments and qualitative data, while ERM utilizes data-driven insights to identify and assess risks. By leveraging advanced analytics and modeling, enterprise risk management can provide a more accurate picture of an organization’s risk profile.

Leadership

One key difference when looking at enterprise risk management vs. traditional risk management is the role of leadership. In a TRM approach, one specific department or team is responsible for managing incidents, and decisions are made at the operational level.

ERM is often integrated into an organization’s overall strategy and business planning, with senior leaders taking a proactive role in identifying and addressing risks that could impact the organization’s long-term success.

Risk appetite

Another important difference is the focus on risk appetite. In a TRM approach, the focus is on minimizing risks, often to a predetermined threshold. When comparing enterprise risk management vs. traditional risk management, the focus is on understanding and managing an organization’s risk appetite.

This involves defining the level of risk they’re willing to accept in pursuit of its strategic objectives, and ensuring that risk management strategies are aligned with this risk appetite. By taking a more nuanced approach to risk management, enterprise risk management allows organizations to take calculated risks that can lead to greater innovation and success.

Scope

Traditional risk management often focuses on specific types of risks or siloed departments, often focusing on identifying and mitigating specific risks within individual departments or functions. When looking at enterprise risk management vs. traditional risk management, on the other hand, ERM takes a comprehensive view of risks across the entire organization, allowing for a more comprehensive understanding of the company’s risk profile, and enabling better decision-making around risk mitigation strategies.

Proactivity

ERM is often integrated within an organization’s overall strategic planning process. When comparing enterprise risk management vs. traditional risk management, this allows for a more proactive approach to risk management, where risks are considered in the context of the organization’s strategic goals and objectives. TRM is often viewed as a separate function, which means that it’s often reactive and focuses on responding to risks as they arise.

Enterprise risk management vs. Traditional risk management

So, which approach is better? It depends on the organization and its goals. Traditional risk management can be effective in managing risks in a specific area or department, particularly where risks are well-understood and predictable. However, for organizations facing complex and interconnected risks that cut across multiple departments and areas, enterprise risk management is likely to be a more effective approach.

When breaking down enterprise risk management vs. traditional risk management, ERM allows organizations to take a more strategic and integrated approach to risk management, aligning risk management with business objectives and enabling the organization to take calculated risks that can drive innovation and growth.

Enterprise risk management has a greater focus on continuous improvement and adaptation to changing circumstances, proactively working to identify potential risks and mitigate them before they become significant issues. This requires a culture of risk awareness and collaboration across the entire organization.

When assessing enterprise risk management vs. traditional risk management, the key similarities are that they both aim to identify, assess, and mitigate risks to an organization. However, they differ significantly in their methodologies and outcomes. By adopting an ERM approach, organizations can gain a more holistic view of their risk profile and make more informed decisions to protect their business.

Resolver: Your enterprise risk management solution

Do you want to learn more about whether to choose enterprise risk management vs. traditional risk management for your organization? Resolver’s enterprise risk management solution is a powerful tool that can help organizations of all sizes to effectively manage their risks and make informed decisions to protect their business operations. By leveraging Resolver’s integrated risk management platform, organizations can gain a holistic view of their risks, automate workflows, and collaborate across teams to mitigate potential threats.

With Resolver’s ERM solution, organizations can improve their risk posture, streamline their risk management processes, and reduce the likelihood of negative incidents that could negatively impact their business. If you’re looking to modernize your approach to risk management, Resolver has the tools and expertise to help you achieve your goals.

To learn more about Resolver’s enterprise risk management solution and other GRC management products, please register for an upcoming risk management showcase to see us in action.

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