Integration of ERM in Strategic Planning and Execution
The IERP’s CRO Networking Group (CRONG) is an exclusive forum where senior ERM practitioners and Chief Risk Officers meet to promote fellowship, share war stories and best practices. Away from the hype and vested interests of vendors, consultants and academics, the CRONG honestly and openly addresses critical shared interests that concern anyone who deals with ERM at senior management level. It is also a platform where issues and concerns affecting the ERM profession as a whole, are critically dissected and analysed, and viewed from different perspectives.
On 10th December 2019, a presentation on “Integration of Enterprise Risk Management (ERM) in Strategic Planning & Execution” was delivered by En Ariff Nor Salamon, Head of Risk Management, Icon Offshore Berhad, hosted by Icon at its corporate headquarters.
“The involvement of ERM in strategic planning is inevitable,” said Ariff Nor bin Salamon, Icon Offshore Berhad’s Risk Manager. Icon, a long-standing player in the Oil & Gas Industry, has several areas where Ariff, who joined in December 2018, sees its applicability. Always a high-risk industry, O&G has of late been buffeted by market uncertainty, making it an extremely challenging environment to operate in. But before anything from the realm of ERM can be applied, there is a need to understand which tools are most suitable for the kind of decisions that have to be made by Icon. What it boils down to, he added, is the firm’s orientation, and what direction it wants to take.
Strategic planning, and the integration of ERM with this process, is essentially the presentation of a set of choices and their possible outcomes. It helps to define and articulate the value proposition that the business brings to the market, and the way in which the firm intends to distinguish itself from its competitors. Strategic planning is not without its hazards; several issues arise as it develops, and not all of them can be resolved at the material time. While integration issues may vary according to the respective organisations, there are some which may be common, such as the perception of ERM as not adding value to the strategic planning process; leadership change; allocation of resources; sustainability; variable market conditions; and overall awareness and buy-in.
The process of integration is no less challenging, and has to be addressed at macro and micro levels if it is to succeed. It requires careful documentation through the generation of risk reports and updates, as well as the hands-on involvement of various levels of management of the respective business units, departments or subsidiaries. Because each of these have their own risks, each specific risk needs to be identified before it can be addressed and integrated into the process of strategic planning. All this demands a significant amount of feedback which in turn requires the input of many staff from many areas, who may be labouring under their own unique constraints.
Ariff said that integration actually happens at three levels: macro, micro and functional. At macro level, risk reports and updates support corporate-level strategy and business planning; micro level sees it applied in business units which in turn provide information that helps formulate the business plan. The third level is where action plans that support strategic initiatives are launched; these are specific tasks. “Evaluation is ongoing,” he added. “This includes monitoring and setting up or improving the framework that is to be followed.” While efforts are made to identify and address risks faced by the business, the time spent on different types of risk is often not in proportion to the seriousness of the respective risks – a hard fact to accept, but true in many cases.
At present, Icon is focussing on its debt restructuring programme, he said. Its core business is maintaining its ships and ensuring that they are ready to sail whenever required. The firm has the additional challenge of managing extremely mobile employees; crew members aboard ships which are constantly on the move. Managing mobile crews differs substantially from managing land-based employees who are not mobile.
Considering the rapidly-changing business environment, sometimes the best course of action for a firm is to understand its dynamics and manage its business accordingly. There will always be risks but working at building a plan and determining how to execute it may be the only way forward for the business. As many aspects as possible – financial, regulatory, legislative, human resources – need to be considered, of course, but all these should be viewed from the perspective of creating, enhancing and sustaining the value of the firm.