Enterprise Risk Management is a major part of risk management framework which organizes, plans, controls and leads the functions of an organization in order to reduces the possible risks that may affect the organization. Many organizations claim that they find ERM easy and implements it in the easiest way but it’s not the actual story. It requires a rare combination of organizational hierarchy and strong executive management. The most explicit concerns that generally a company faces are normally not related to the industry, geography or regulations. By analyzing common ERM challenges, management would be able to better develop and revamp their own enterprise risk management programs.
Risk may vary from vendor to vendor and department to department. What your vendor management department thinks of risk might not be a risk for and IT department. One of the biggest challenges would be maintaining a consistent and commonly applied risk terminologies. The most challenging thing that would come across anything would be defining risk itself. It is to ensure that each risk must be consistent and backed by correct instructions along with the clear guidance of laws and regulations that defines risk is supported by the regulatory directions.
Qualitative and Quantitative Metrics
Metrics like qualitative and quantitative arrive as challenge when it comes to assessing enterprise risk management. Qualitative method generalizes risk indicators instead of being specific to risk scores and they are less preferred. Whereas, quantitative method helps in quantifying risks which are in highest priority in order to focus on the probability in achieving set objectives and overall cost and this method of assessing enterprise risk management is highly preferred.
Managing Risk throughout the Department
So, here we know the enterprise risk management can help us in evaluating and identifying company’s risk, but story is not limited to it. ERM software helps organization to be able to report and visualize that how, where and what kind to risk to be shared with management, regulators, auditors and board of directors and with the help of ERM software these things are not to done manually but all is done through automated system.
Challenge that originations usually faces is while reporting two kinds of risks which are what kind or information should be discussed with internal and external management or vendors and how it should be communicated. Handling external risks are not that difficult since external management or public is limited to share certain information only. For example, financial statements, annual meetings, public presentations, quarterly announcement etc. Whereas how risk should be communicated is concerned, it is preferred to be done through board/audit committee, line management meetings and reports which are typically generate through risk database, taxonomy etc.
The time constraint of ERM risk assessment is mainly dependent upon the willingness of an organization that how it is willing to invest in risk management. For the solution to this challenge, are preferably willing to shift from short term risk assessment to a longer term or a hybrid solution.