The COVID-19 chaos shows the clear business benefits of managing risk from an enterprise perspective.
The Coronavirus global chaos is exactly the type of fast-emerging risk with uncertain consequences that can be ignored until it is too late for traditional escalation procedures to be effective. When reports of lockdown came from China, most organisations in the West and Europe had weeks to act on this information but chose to wait and see.
The disparity likely stems, at least in part, from different approaches to Enterprise Risk Management (ERM) — and reaffirms the business case for methods, processes, response thresholds and actions to protect enterprise goals, earnings and capital.
For many companies, ERM has become a check-the-box activity during the decade-long period of economic growth, but the coronavirus global chaos clearly shows the need for attention and rigour.
The biggest problems with a pared-down, formulaic approach to ERM often do not emerge until it is too late.
Complicated flowcharts and in-depth policy manuals intended to guide escalation decisions during a crisis are often difficult and time-consuming to follow. They are not a substitute for an effective ERM function.
Aligned Risk Management
The key to delivering effective ERM is to ensure that business executives contribute to evaluating and defining the enterprise risk appetite. This also ensures that ERM can assign risk ownership at the highest level of organisational decision making.
This view clarifies and formalizes the enterprise position that certain risks, such as a pandemic, are threats to strategic objectives like business growth. Leaders can then agree in advance that however remote a risk might seem, its emergence will trigger decisive and quick action to mitigate the effects — driven by a predetermined team of owners and actions.
Initiatives with timely risk management are more than twice as likely to completely satisfy senior stakeholders
Aligning ERM with strategy also positions an organisation to take certain risks to seize opportunities that might otherwise be missed.
Effective risk management is also closely correlated with several other important business outcomes.
Risk is like cholesterol, there are good and bad kinds, the bad kind manifests in wrongdoing or poor decisions, but the good kind helps an organisation to take bigger, riskier growth bets — which is the single biggest differentiator of profitable growth.
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