Running head: ENTERPRISE RISK MANAGEMENT (ERM)
Enterprise Risk Management (ERM)
ENTERPRISE RISK MANAGEMENT (ERM)
Businesses and organizations face different risks that threaten their existence and success.
Risk management enables businesses and organizations to identify, evaluate, and prioritize these
unfortunate events. There are numerous sources of risks, including legal liabilities, project
failures, accidents, credit risk, natural disasters, and deliberate attacks from competing
companies or individuals. Companies can manage risks by avoiding them, reducing the adverse
outcomes they can cause, reducing the level of risk consequences, or transferring the threat to a
different party. One of the most effective strategies businesses implement in managing risks is
Enterprise Risk Management (ERM).
The Enterprise Risk Management (ERM)
Enterprise Risk Management is a strategy used by businesses and organizations to
identify, assess, and prepare for hazards, dangers, and other disasters (risks) that are likely to
happen. Risks cause interferences on the business of organizations objectives and goals. Apart
from identifying risks, ERM also enables organizations to develop the right action plan
acceptable and available to all investors, shareholders, and stakeholders involved. ERM is used
by all industries, including energy, construction, finance, public health, aviation, and public
health (Khan et al., 2016). Organizations have been managing risks in different ways, like by
buying insurance policies on risks such as natural disasters, fires, and theft. Enterprise Risk
Management also addresses various business risks such as obstacles or challenges associated
with company supply chain failure, technology failure, and expansion costs and financing.
Why organizations need ERM application
ENTERPRISE RISK MANAGEMENT (ERM)
Modern organizations are being faced with different and diverse levels of potential
dangers and obstacles. Apart from the traditional know risks, modern organizations are faced
with new threats such as reputation, overall governance, human and legal resource management,
and daily operational procedures failure. With the assistance of all other stakeholders involved
in risk management, project managers have to assess all the risks relevant to their organizations
and industries. After evaluating, they have to prioritize which risks are more likely to happen or
cause more damage than the others. Lastly, they have to make informed decisions in coming up
with strategies that would effectively handle the identified risks. Risk management is supposed
to be integrated into the day-to-day operations of a company. Therefore, this calls for developing
new departments and positions such as the department of risk management and a risk
management manager position.
One of the reasons why organizations need ERM is to create a risk-focused culture.
Organizations that implement ERM always note that those at the senior level start putting their
focus more on risk, which eventually results in more risk discussions at all organization levels.
This eventually becomes the organization's culture, and all decisions are made after risk
management is done. The risk-focused culture developed leads to more information sharing
among the staff members and between the staff members and their seniors (Horvath, 2020). This
ensures that informed decisions are made, and risk is addressed or discussed in a more formal
The second reason why organizations need to implement ERM is that quality is
significantly improved. Risk management is done based on the data collected regarding certain