Enterprise Risk Management Strategy 101: How to Develop One

A 2022 survey on Enterprise Risk Oversight found that 60% of respondents believe the volume and complexity of risks have increased recently. However, only about a third of organizations have comprehensive Enterprise Risk Management (ERM) processes in place.

This is largely because there are no clear, universal rules for implementing ERM.

So, what is enterprise risk management? In this article, we’ll define it, discuss how to develop an enterprise risk management strategy that integrates with strategy and performance, and highlight the types of enterprise risk strategy.

TL;DR

Integrate risk management with your business strategy to spot and handle risks across the entire organization.

Regularly assess risks, develop strong mitigation plans, and equip employees with the tools and knowledge to manage risks.

Implement tools like Sprinto to enhance your risk identification, assessment, and prioritization.

What is ERM?

Enterprise Risk Management (ERM) is a strategic approach to managing organizational risks. It sets organizational strategies and identifies potential events that could impact the entity. 

A large enterprise must still pay attention to security controls from their side. They need to recognize that the ownership of the data still lies with them regardless of where or in what form it is. 

Considering the viewpoint that risk is commensurate with size and computing resources, as a company grows, so does its data, and the complexity of handling, processing, and managing customer data also increases. 

ERM aims to manage these risks within the organization’s risk tolerance, providing reasonable assurance that the organization will achieve its objectives.

What is an Enterprise Risk Management Strategy?

An ERM strategy is an organization’s plan or approach to identify, assess, and manage risks across the entire organization. It is a versatile strategy for managing risk, commonly implemented at the enterprise level, yet applicable to all aspects of risk management.

There may be risks that “fall between the silos” and go unnoticed by individual department leaders. Risks don’t follow the management’s organizational chart and can appear anywhere in the business. Because of this, a risk might emerge without catching the attention of any silo leaders, remaining unnoticed until it triggers a catastrophic event.

This is why you need a strategy to tackle all the entity-wide problems.

Types of ERM Frameworks

ERM frameworks are aplenty. It can be hard to keep track of them all, let alone decide which is right for your organization. To help you, we’ve compiled a list of the five most popular ERM frameworks, along with a brief description.

Don’t be fearful of risks. Understand them and manage and minimize them to an acceptable level. — Naved Abdali

1. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) ERM Framework

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) developed the ERM Framework, which provides a comprehensive approach to managing enterprise risks. 

Unlike the CAS framework, which outlines specific process steps, the COSO framework is structured around 20 principles organized into five interrelated components:

• Governance and Culture
• Strategy and Objective-setting
• Performance
• Review and Revision
• Information, Communication, and Reporting

2. The International Organization for Standardization (IOS) ERM Framework

The ISO ERM framework, known as ISO 31000, provides guidelines on managing risks in a world of uncertainty and applies to businesses of all sizes. It offers clear, actionable advice on risk management and is designed for use by anyone involved in managing risks, not just risk management professionals. 

3. The Risk Management Society (RIMS) ERM Framework

Founded in 1950, RIMS is a nonprofit organization dedicated to advancing risk management practices worldwide. It represents over 3,500 entities across various sectors, including charitable, industrial, government, non-profit, and service organizations. The RIMS ERM framework is a tool for benchmarking and enhancing risk management practices.

4. The Casualty Actuarial Society (CAS) ERM Framework

The Casualty Actuarial Society (CAS) provides an ERM framework which entails seven steps for risk evaluation and management. This approach aids organizations in understanding the risks pertinent to their line of business and objectives and then addressing them appropriately.

Steps to Develop an Enterprise Risk Management Strategy

Several steps are involved in designing the strategy that serves the purpose of your ERM goal. The first one is aligning the ERM strategy with the given business objective and preparing to manage higher risk.

With that being said, here are the steps involved:

1. Align ERM strategies and business goals

Risks in enterprises have been around for ages, but as per a new survey conducted by DuPont Sustainable Solutions, it seems that they are here to stay and even grow in 2022. To evaluate the current level of risk in your enterprise, you should begin with the mapping of risk activities intersecting with your business. 

These are corporate strategy, financial profiles (capital and liquidity), investment objectives, legal affairs, management structure (governance), supplier, client, and third-party relationships, as well as sustainability projects.

This is an important factor to consider since different people have different tolerance levels for risks. You can use it when making decisions and deciding which of the risk management processes should constitute the ERM plan.

2. Prepare for increased risk

Since risks cut across various aspects of an enterprise, this means that a section/department cannot handle the risks independently. Given that crises might have mobile impacts, it is recommended to involve one representative from every function in the risk management planning process.

That is why any great problem, such as a cybersecurity breach, impacts everyone, and many teams have to get involved in the process of recovery. It is important because a diverse planning team encompasses various points of view, which can prevent the emergence of dangerous blind spots.

Here is how you can prepare and manage for increased risk:

• Take your time to perform risk management audits to identify possible risks early enough before they occur.
• Ensure that there is a detailed action plan for handling the risks that may occur in a specific activity or across the firm as a whole.
• Make a list of what individuals are supposed to do so that there is an understanding of risk management tasks.
• Remind frequent control review and updating to maintain control effectiveness
• Ensuring that the employees are aware of risk management is fundamental.
• Encourage people to discuss risks and possible harm incidents that might have taken place
• Implement risk management software to track and analyze risks
• Use cybersecurity tools to protect against digital threats
• Use tools like SWOT analysis, risk matrices, and scenario planning

3. Maintain a risk register

A risk register, also known as a risk log, is a tool to manage risks throughout your enterprise. It is like a spreadsheet or database that lists all the risks your business might face and provides important details for each one.

A good risk register includes information about each threat to your enterprise. This includes the type of risk, potential impacts or disruptions it could cause, and the actions you have in place to mitigate it or respond if it occurs. 

This information is a reference point when developing plans to handle new risks as they arise.

Communicate priorities clearly

Your company needs to identify and communicate its top priorities when managing risks. These might be risks that are crucial to address for the company’s ongoing success. Ensure these priorities are well-understood across the organization as risks that should never be taken lightly.

Alternatively, the enterprise might also want to communicate its plans for handling these risks if they were to occur. This ensures everyone knows what steps to take if these critical events happen.

Here are some suggestions on how you can communicate the priorities clearly:

• Categorize risks based on their importance and potential impact on the company
• Clearly define which risks are considered high-importance and critical to mitigate

• Use regular meetings, newsletters, or intranet updates to communicate risk priorities
• Ensure that information reaches all levels of the organization, from leadership to frontline staff

• Explain why certain risks are prioritized over others
• Share insights into the potential consequences of these risks if not properly managed
• Use charts, graphs, or visual presentations to illustrate risk priorities and their impacts

Invest in the right tools

To minimize and manage risks, enterprises need to use the ERM software solutions with these key features:

Risk Identification	Automatically scans networks to detect emerging risks and vulnerabilities
Risk Visualization	Simplifies complex risk analysis data into clear and understandable visuals.
Risk Assessment	Analyze risks and vulnerabilities to assess their severity and potential impact on resources.
Risk Prioritization	Prioritizes risks based on their potential damage and notifies operators of necessary actions.
Centralized Dashboard	Monitors risks and solutions through user-friendly visual reports and dashboards
Regulatory Compliance	Ensures adherence to regulatory requirements by tracking and managing compliance processes
Document Management	Facilitates real-time collaboration and sharing of documents and reports among team members.
Issue Management	Coordinates and oversees risk-based projects, addressing critical risk management issues promptly

This is where Sprinto comes in…

Sprinto, as a GRC automation software, enhances your risk management by integrating with your control environment. It moves you away from a false sense of security by capturing and visualizing your organization’s security risks. 

With Sprinto, you can prioritize and systematically assess these risks, ensuring you don’t underestimate them or take on unnecessary liabilities. 

In essence, Sprinto encourages thoughtful consideration of risk consequences, helping you make informed decisions and appropriately manage risks without claiming to predict the future perfectly.

Tips for an Effective ERM Strategy

The PwC Pulse Survey reveals that despite significant investments and improvements in risk management, 75% of organizations struggle to keep up with evolving regulatory requirements. In such a case, having a good ERM strategy is more crucial than ever. Here are some practical tips to help your organization stay ahead of the curve and manage risks.

• Identify and assess potential risks as soon as possible to stay ahead.
• Make sure senior management and the board are involved in the ERM process so that risk management aligns with your strategic goals.
• Encourage a culture where everyone is aware of and actively managing risks in their daily tasks and decisions.
• Focus on the most significant risks that could have the biggest impact on your objectives.
• Put strong internal controls in place to effectively manage the risks you’ve identified.
• Monitor your risk exposure regularly and review your strategies to ensure they’re still effective and adaptable to new challenges.

Enterprise Risk Management in 2030: Preparing for the Future Today

The future of ERM is evolving towards precise predictions, data-driven insights, and proactive mitigation strategies. With that being said, here is what the future of enterprise risk management looks like:

AI plays a crucial role by analyzing vast datasets in real-time and detecting patterns and anomalies that indicate emerging risks. This data-driven approach enables organizations to mitigate potential threats before they escalate proactively.

Also, more organizations are investing more in ERM and getting more involved in its implementation. The changing risk landscape poses a significant threat to solid financial budgets, derailing current and future organizational investment plans for market leadership. 

CFOs, particularly publicly traded companies, face regulatory scrutiny if they overlook internal risks and inaccurately present financial forecasts. Executives and CFOs must stay well-informed about these risks to avoid regulatory issues.

The Smart Way to Ace Risk Management Strategy

Effective risk management requires making informed judgments about risks within your business context and comparing them against established benchmarks. Without this approach, risk management can become a guessing game, filled with assumptions and disconnected from reality.

This often leads to a weak risk register, misallocation of resources, and poor decision-making overall, defeating the purpose of risk management.

Sprinto helps you to rigorously assess risks and understand their impacts, enabling precise and thoughtful action. 

When you seamlessly integrate with your cloud infrastructure, Sprinto swiftly identifies misconfigurations and vulnerabilities with accuracy, helping you avoid both over-hedging and under-hedging risks, and ensuring a comprehensive risk inventory.

Supported by a risk register and industry-standard benchmarks, Sprinto guides you in assessing and managing security risks deliberately rather than intuitively.

Key Features of Sprinto’s risk management suite:

• Comprehensive risk library: Identify security risks across your business assets and processes using Sprinto’s extensive risk database.
• Customizable risk management: Add custom risks and assign impact scores to create a detailed risk register that reflects your specific challenges and removes ambiguity in assessment.
• Scalable and Updatable: Continuously update your risk data as your business grows, ensuring actionable insights into evolving risks at all times.

Strengthening your risk management strategy with Sprinto. Speak to our experts.

FAQs

What is an example of enterprise risk management?

An example of enterprise risk management is a company hiring extra employees to conduct product quality control. This helps manage the risk of producing faulty products, ensure higher quality, and reduce potential losses from defects.

What is the role of ERM?

Enterprise Risk Management helps organizations identify, assess, and manage risks. Its role is to align the organization’s risk appetite with its strategy, improve risk response decisions, reduce unexpected losses, and boost stakeholder confidence and value.

How is the effectiveness of an ERM strategy measured? 

The effectiveness of an ERM strategy is measured through regular risk assessments, audits, performance metrics, and feedback from stakeholders.