Factors Influencing Accelerating Adoption Of ERM
More and more organisations are beginning to realise the effectiveness of Enterprise Risk Management (ERM) and are actively looking for ways of making it work for them. Many factors have come together to bring about this growing acceptance; education, internationally-accepted standards for risk management and best practices are just three factors that are spurring the uptake of ERM. There are many more, including the changing business environment itself, and the need for firms to revisit their strategies in the light of disruptions and the ensuing loss of revenue stemming from incidents which were not anticipated or inadequately prepared for.
Incidents like the Covid-19 pandemic, with its ability to affect economies worldwide and wreak havoc on supply chains, may be more recent reasons why ERM should be a part of every organisation’s strategy, but risk management is not something new. Companies may have even been practising some aspects of ERM without fully realising or recognising it as such. This is not necessarily a bad thing as the organisation will then not have to start from scratch; more importantly, staff will not be dealing with something totally new. There need not be extensive reorientation or training, and people may not have to move beyond their comfort zones.
This growing acceptance also indicates that there are enough critical success factors and stories to convince firms that putting ERM systems in place is a workable strategy with measurable ROI. Resources allocated to ERM can thus be justified, and continue to be applied towards creating value for the firm. Successful ERM implementation has shown that the system can be integrated with existing ones and be scaled up or down as required, spurring firms that are undecided about it to consider implementing it. The current environment is a major deciding factor as well. Given the levels of disruption and the scalability of ERM systems, organisations have become more open to trying new methods.
It helps too that many ERM-linked processes and procedures are already in place in many businesses. Most are already identifying risks, for instance, and have been applying management strategies to sustain their growth and competitiveness. These measures would have included ways of mitigating risks to the organisation. Perhaps they are realising that all they need, subsequently, is the ERM method of evaluation, analysis and monitoring to improve these. Because of its scalability, ERM practitioners usually encourage firms to focus on small projects to demonstrate the effectiveness of its processes, before applying these more widely.
When implementation is controlled in this way, it helps the firm understand its challenges in a comprehensive, connected way, besides allowing the people involved to see what works for the organisation, and what doesn’t. It allows them to improve and even make mistakes without severe consequences. In the process, they will develop a deeper understanding of the organisation, and be able to more accurately identify the core issues it faces. ERM processes are also a means of improving the company’s documentation, and provides an accurate picture of how well its systems are working – all important, relevant indications of the organisation’s overall health.
What ERM has been consistently demonstrating where it has been applied, is that it can support firms in their efforts to anticipate events that place them at risk. It helps them answer the “hard questions” about risk, such as how far and wide the risk may spread, and how long these will be felt. As firms try to answer, their responses will naturally provoke a state of preparedness associated with effective implementation, and ongoing monitoring of the situation to keep abreast of developments. In applying ERM, firms not only come to grips with risk, they may also identify potential red flags in the organisation and shortfalls that need fixing.
In addition to all this, they may become better able to recognise emerging risks as well as potential opportunities. It cannot be denied that there is much more sharing of information among industry players nowadays; word about the effectiveness of ERM gets around, particularly when the profession itself is supported by accreditation and international standards. Having internationally-recognised standards goes a long way towards acceptance, as there is always a reliable reference and usually a network of experienced professionals to seek advice from. These help to provide important perspectives of factors affecting enterprise risk management that may not be obvious to risk managers who are “too close” to it.
The world is changing, and businesses know that they too must change – or die. Globalisation is accelerating the adoption of standards, and there is a growing need to urgently conform to accepted best practices, the world over. Firms that cannot do this quickly or effectively enough, stand to lose out in terms of competitiveness and sustainability. This may be the strongest factor that is accelerating the adoption of ERM worldwide. Risk professionals know that ERM tools don’t just manage risks, they identify opportunities as well, and businesses today need all the help they can get in this area. ERM helps the organisation take a proactive stance, which is imperative to seizing opportunities.
Being proactive helps the organisation mature, and further integrates ERM with its systems, processes and procedures. The firm thus becomes better at managing risks, mitigating them and identifying emerging ones that may derail the business. All businesses will need to take risks at one time or another. With the right ERM frameworks in place, they will have the necessary information to make the right decisions that will turn risks into opportunity, improve business performance, and enable them to continue creating value in the long term.
