The Risk Management Circle
ERM at its best can a process for overseeing all of the financial management processes of the firm.
To accomplish this, ERM needs to be a light touch in the picture above where the arrows in and out of ERM indicate the movement of information from the various processes and the facilitation of coordination and quality control moving back. ERM can provide help to those responsible for the processes by sharing insights gained from a cross business enterprise perspective and expertise from a subject matter concentration. ERM can help to build out these processes when they are weak or missing but to be fully effective, ERM needs to stay lean by passing the management of those processes to other areas.
At its worst, it is a drag on as many of those processes that it actually touches.
When ERM is a drag, the arrows around the outside of the diagram above are removed or weakened substantially so that everything flows through ERM. At first, only a few of the outside arrows are missing but over time ERM takes on a more and more central role to all financial decision making. This creates a dual management structure.
Or it can merely be a waste of time and money that does not disrupt the rest of the firm.
Under this scenario, the lines between ERM and the important financial functions are partially or totally missing. ERM has an autonomous role, for example to create and maintain an internal model for compliance purposes.