There are four keys to ERM. The first is Transparency.
In traditional risk management situations, the degree to which risk is tightly controlled or loosely allowed is often a personal decision made by the middle manager who “inherited” the responsibility for a particular risk. That person may make the best decision based on full knowledge of the nature of the risk and the availability and cost of mitigation of the risk, or they might just choose an approach based on poor or even inaccurate information because that is the best that they can find with the time they can spare.
Enterprise risk management (ERM) is a commitment to executive and board attention to the important risks of the firm. In a fully realized ERM, the risk profile of the firm and the plans to change or maintain that profile from one year to the next—while exploiting, managing, limiting or avoiding various risks in ways that are tied to the firm’s strategy—are shared among the management team and with the board.
In the best programs, the risk profile and risk plans are not only shared, they are a topic of debate and challenge. These firms realize that a dollar of profit usually has the exact same value as a dollar of loss, so they conclude that risk management, well-chosen and executed, can be as important to success as marketing.
A clever math student may be able to just write down the answer, but teachers often insist that students show their work to get credit.
Take-Away:
“Show your work” is the idea of ERM
Show steps of and thinking behind risk management process.
Helps others understand intent and determine whether objectives are being met.
More about Transparency about risk and risk management and how it is important to executive management, to the board and to middle managers on Willis Towers Watson Wire.
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