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You may be facing many burning issues that impact your organisation and your ability to deliver on your objectives. From cybersecurity threats and regulatory changes to operational disruptions and strategic missteps, the risk landscape is continually evolving.
Implementing an effective Enterprise Risk Management (ERM) framework is crucial for identifying, assessing, managing, and monitoring risks across an organisation. This step-by-step guide provides practical insights and actionable steps to help you set up a robust ERM framework.
Why do you need an Enterprise Risk Management framework?
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An ERM framework can deliver significant value to a variety of organisations, including commercial enterprises, non-profit organisations and charities, government bodies, and so on. Regardless of what you do, you will face some risks and challenges. Here are the types of problems you might be facing:
Your employees do not consistently recognise or report potential risks and issues, leading to unaddressed vulnerabilities and unexpected crises building up in the background.
Your risk management practices vary widely across departments, resulting in gaps where significant risks are overlooked or inadequately addressed.
Your risk management does not have any bearing on your strategic planning. As a result, you lack critical insights into risks, leading to poor strategic decisions that expose you to unnecessary risks and potential losses.
You struggle to comply with industry regulations and standards, which could result in legal penalties and damage to your organisation's reputation.
Your organisation lacks well-defined incident response plans, making it difficult to respond effectively to crises, which exacerbates the impact of incidents and prolongs recovery times.
You do not have a clear understanding of risk priorities, leading to inefficient allocation of resources where low-impact operational challenges receive too much attention while critical risks are neglected.
This list is by no means exhaustive. But if you are facing any of these situations, you would benefit from urgently acting.
Need some help? Don’t hesitate to reach out to Aevitium LTD and we will help you to structure an ERM framework that works for your organisation.
How to implement an ERM framework?
An ERM framework involves a systematic approach to identifying, assessing, managing, and monitoring risks. It provides the tools to address your pain-points from strategic alignment to potentially changing the culture of your organisation.
The following step-by-step guide will help you systematically develop and embed a robust ERM framework that supports your strategic objectives and ensures operational resilience.
Step 1: Assess current risk and control management maturity
Evaluate existing practices:
Conduct a comprehensive review of your current risk management practices, tools, and culture.
Use a risk management maturity model to determine your organisation's current level of maturity.
Identify gaps:
Perform a gap analysis to identify discrepancies between your current practices and best practices or regulatory requirements.
Prioritise gaps that pose significant challenges to the organisation.
Step 2: Review risk management and oversight roles and responsibilities
Transform governance structures:
Ensure everyone knows what they responsible for and define clear roles for the board, executive management, risk committees, and the Chief Risk Officer (CRO) if you have one.
Create, or review, risk committees at various levels (e.g., enterprise, operational) to ensure focused risk management efforts.
Remove duplication and ensure a decision can only be made in one place.
Leadership commitment:
Make sure top management and the board act as role models and are fully committed to and engaged in risk governance.
Set the tone at the top to reinforce the importance of risk management throughout the organisation.
Step 3: Develop risk and control management policies and procedures
Create comprehensive policies:
Develop policies that address identified risks and establish clear guidelines for risk management.
Ensure policies are aligned with industry standards and regulatory requirements.
Streamline policy framework if you have one and establish global standards to ensure risk are consistently managed across your footprint.
Implement procedures:
Standardise processes for conducting risk assessments, including the use of risk registers, risk matrices, and both qualitative and quantitative assessment tools.
Implement risk mitigation strategies such as avoidance, reduction, transfer, or acceptance.
Step 4: Integrate risk management with strategic planning
Incorporate risk management into strategic planning and decision-making processes. Develop emerging risk framework and horizon scanning capabilities to stay on top of evolving trends and innovation.
Use scenario planning and stress testing to anticipate potential risks and their impact on strategic goals and organisational resources, especially capital and liquidity.
Step 5: Implement risk controls
Preventive controls:
Establish guidelines to prevent risks from occurring, such as setting operational standards and implementing security measures.
Conduct regular audits and provide ongoing training to employees.
Detective controls:
Define methods for detecting risks, such as monitoring systems and incident reporting protocols.
Utilise automated monitoring systems and fraud detection software.
Corrective controls:
Develop policies for responding to and correcting identified risks or incidents.
Implement incident response plans and post-incident reviews.
Directive controls:
Establish guidelines that direct employees’ actions toward compliance and risk management.
Ensure policies are communicated clearly and reinforced through regular training.
Step 6: Monitor and review
Continuous monitoring:
Regularly review the effectiveness of risk management strategies through audits and performance metrics.
Use real-time monitoring systems to provide timely insights to decision-makers.
Continuous improvement:
Establish feedback mechanisms to learn from past risk events and continuously improve risk management practices.
Adapt and refine risk management processes based on feedback and changing risk landscapes.
Aevitium LTD can help you with the assessment and implementation of your risk framework. For example, we provide a range of simple, free online assessment tools, and we can also tailor an in-depth review of your organisation with our Integrated Risk Framework.
Addressing the myriad challenges and vulnerabilities that can hinder your organisation's ability to meet its objectives requires the implementation of a comprehensive Enterprise Risk Management (ERM) framework. The evolving risk landscape, marked by cybersecurity threats, regulatory changes, operational disruptions, and strategic missteps, demands a proactive and structured approach to risk management. An effective ERM framework involves assessing current practices, defining roles and responsibilities, developing comprehensive policies, integrating risk management with strategic planning, implementing risk controls, and continuously monitoring and improving processes.
Want to learn more about Enterprise Risk Management? Discover our detailed resource page covering all the key ERM components.Â
For further details and resources, refer to the COSO ERM Framework, the ERM Initiative at NC State University, Harvard Business Review, IIA, McKinsey & Company, Gartner, PwC, Deloitte, and the World Economic Forum.
Really informative !