Risk management is critical for every organization's success in today's rapidly changing business environment. Recognizing, analyzing, and mitigating risk is crucial for a company to survive unforeseen occurrences and fulfill its strategic goals. Traditional risk management and enterprise risk management are the two basic methods to risk management (ERM).

Traditional risk management was the typical strategy for several years, concentrating on identifying and controlling risks within specific departments or operational areas. On the other hand, ERM takes a more comprehensive approach to risk management, examining risks throughout the business and applying a strategic risk management approach, as companies increasingly use effective enterprise risk management software to achieve this.

This blog will discuss the main differences between Enterprise Risk Management and Traditional Risk Management and how ERM is more effective than the latter.

Key Differences Between Enterprise Risk Management and Traditional Risk Management

Traditional risk management and enterprise risk management (ERM) are two distinctive risk management methods companies utilize. Below are a few essential distinctions between ERM and conventional risk management tools:

Strategic vs. Tactical

ERM is a systematic approach to risk management that aligns risk mitigation with the broader strategic objectives of the business, whereas traditional risk management is more operational and focused on active risk management inside a single area.


TRM is more reactive, dealing with issues as they happen, whereas ERM is proactive, detecting possible hazards before they exist and implementing risk management methods with the help of enterprise risk management software.


Traditional systems assess risks and control risks within departments or functional areas, whereas ERM takes a holistic approach to risk management, considering risks throughout the business, and several companies use various ERM tools to mitigate risk.


ERM encourages a culture of risk communication and awareness within the business, promoting risk information exchange and advocating risk mitigation as an inherent component of the decision-making process. On the other hand, traditional risk management does not emphasize communication and information exchange as much.


ERM provides a more formal and organized approach to risk management that incorporates a governance structure with the help of enterprise risk management software that comprises a risk management framework, rules, and procedures. In contrast, traditional risk management may not include a defined governance structure.


ERM focuses on identifying and analyzing risks that may create opportunities for the firm, while traditional risk management might not even examine possible opportunities linked with risk.

To summarize, traditional risk management focuses on controlling risks within divisions or operational departments, whereas ERM takes a more holistic approach to risk management, evaluating risks throughout the entire business and adopting a proactive risk management strategy.

ERM also provides a more organized governance framework via enterprise risk management software and develops a mindset of risk and communication. In contrast, traditional risk management may lack an official governance model and place less emphasis on communication and information exchange.

Why is Enterprise Risk Management More Effective?


Organizations gain from implementing Enterprise Risk Management (ERM) rather than traditional risk management techniques in various ways:

  • ERM tool helps firms identify and analyze risks throughout the organization rather than just specific departments or divisions. This method generates a more accurate and complete view of the organization's risk profile, allowing for more effective risk management choices.
  • It is a holistic approach to risk management, considering all elements of a company, including strategic, financial, operational, and reputational risks. This technique enables companies to identify and manage risks that may jeopardize the attainment of their goals and long-term viability with the help of enterprise risk management software.
  • ERM assists businesses in prioritizing risks according to their possible impact and probability, allowing them to deploy assets more efficiently to handle and mitigate risks. This enables firms to make better risk management and strategic planning decisions to react proactively to possible threats.
  • ERM integrates risk management into strategic planning, allowing firms to evaluate risks when formulating and implementing business plans. This method assists firms in identifying possible risks and opportunities and adapting their strategies accordingly.

Finally, applying enterprise risk management software offers firms a complete and integrated strategy for managing risk, enabling them to handle risks proactively and comprehensively while cultivating a risk-aware culture throughout the company.  

If you are looking for an effective enterprise risk management platform to update your organization’s traditional risk management process, search Predict360's Enterprise Risk Management Software. Predict360’s risk management software is endorsed by the American Banker’s Association (ABA) and gives users visibility into risks across the organization.



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