Enterprise Risk Management (ERM)
Candlefocus EditorThe Committee of Sponsoring Organizations of the Treadway Commission (COSO) has created a well-accepted framework for ERM, which details eight components that make up effective ERM strategies. They are: Internal Environment, Objectives Setting, Event Identification, Risk Assessment, Risk Response, Control Activities, Information and Communication and Monitoring.
The purpose of each of these components is to ensure that businesses take into consideration all risks that could affect their operations and strategies, so that proper measures are put in place to reduce the likelihood of something bad occurring. For example, a company may decide that cyber security risks need to be identified, assessed, and addressed through appropriate policies and procedures. The internal environment is another component that helps organizations to identify the risk culture. This could include the hiring of competent personnel, the establishment of policies or processes that minimize or minimize risk, or the establishment of audit trails and procedures to ensure that action has been taken to address identified risks.
Ultimately, ERM offers organizations a more holistic understanding of the risks to their organization, and it allows them to leverage management of all types of risks, such as operational, financial, legal, and strategic risks. Effective ERM helps organizations to increase their efficiency and performance, allowing them to make better decisions and to protect their business in ways that traditional risk management strategies may not. It also helps to ensure that future risks are addressed proactively instead of reactively, which can save organizations time and money in the long run.