Get your facts right for Enterprise Risk Management implementation success
It’s a bit of a conundrum: some of the factors that make ERM truly effective, are the same ones that make it unpopular too!
Many see it as too time-consuming, troublesome, vague and hard to understand, thereby making it hard to implement. But, like every other management tool, framework, system, process and procedure, ERM has its own share of challenges – but these have to be weighed against the benefits derived by the organisation that implements it. This is especially so when it’s a matter of long-term sustainability. A firm’s reluctance to apply ERM may see it having to grapple with risks that ERM would have helped it avoid.
Challenges with ERM implementation need to be addressed to encourage its uptake, although this has been gaining traction in recent years. Many organisations have reaped its benefits. Some organisations have taken issue with the amount of time that goes into setting it up – often due to poor planning, a poor understanding of ERM, or simply appointing the wrong consultant. But even before systems can be put in place, the Board should be convinced to incorporate it into organisational strategy. Due diligence has to be done; resources, costs and methods have to be identified. The Board’s buy-in isn’t the only thing that’s needed. Management and staff have to be convinced as well.
How does one convince others to adopt something like ERM? Even experts and practitioners have acknowledged the inherent difficulties of implementing it. Those who are considering it should perhaps look for success stories first, especially instances where applying ERM resulted in quantifiable value for the organisation which used it. This may well jump-start the process, and herald the beginning of the organisation’s ERM journey. Boards and management are constantly on the lookout for ways of increasing the value of the business, so it will definitely be in their interest to seriously consider it.
Potential users may be worried about the cost factor. They may see ERM’s success stories as the experiences of companies with deep pockets. For companies operating in straitened circumstances, ERM will look like a cost without commensurate returns. It becomes more worrying when human resources have to be allocated for it, and staff have to be redeployed or seconded from elsewhere. Concerns about sensitive information and the need for confidentiality may arise. But one of the best things about ERM is its scalability. Because it can be customised, it can be adapted to suit the needs of the user.
ERM requires work, no doubt. Board, management and front liners with no experience of it will require training. There are new concepts to grasp; structured processes to design and documentation and extensive measurement to undertake; and some may find it overwhelming. But there are definite frameworks and guidelines to follow when it comes to applying ERM in organisations.
Properly implemented, ERM creates value for the organisation by showing where it faces risks that could be detrimental. ERM frameworks, systems, processes and procedures help it to identify where the dangers lie and opportunities exist, and guide its mitigative efforts. Understanding and implementing ERM is not easy. Even the experts have been known to get it wrong. ERM allows leeway for customisation, because every organisation is different, with different objectives, needs and resources. It ultimately helps firms determine how best to make the right decisions for themselves.