Business success depends on avoiding risks. Otherwise, your business’s bottom line will suffer. That’s why you need enterprise risk management (ERM)! ERM refers to how you identify and eliminate internal and external threats from impacting your business operations. Fundamentally, a risk management strategy means reducing or mitigating risks.
Reducing risks is easier said than done because the internal business environment is always changing. In addition to the internal threats, you must assess the external macroeconomic factors, including inflationary pressures, supply chain bottlenecks, and legislative obstacles. Therefore, you must continually assess internal and external threats to manage risk effectively.
In this article, I’ll define ERM frameworks and how to use them to manage risk. Additionally, you’ll learn about the top software you can use to implement ERM.
But, first, let’s take a look at what an ERM framework is.
What Is an ERM Framework?
Enterprise risk management (ERM) frameworks help structure and determine your risk response. Risk management must oversee all aspects of your business. Individuals, teams, divisions, sites, and operations must account for risks at all times.
ERM is a top-down approach, which includes a comprehensive and detailed look at the business operations. Additionally, you should identify and hold accountable personnel exposed to risks. You can also use ERM software to make the process easier for yourself.
ERM frameworks are documents (similar to the mission statement) that guide the company’s policy on risks.
In the next section, we’ll look at some common ERM frameworks.
Types of ERM Frameworks
ERM isn’t a new process. ERM frameworks are standards applicable in all types of businesses. The two common, industry-independent frameworks are COSO Framework and NIST Cybersecurity Framework.
1. COSO Framework
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework is a system for managing business risk. Many businesses apply the standards set in the COSO framework.
The framework looks at your company’s compliance, finance, and internal auditing policies. Moreover, COSO predominantly deals with internal risks.
2. NIST Cybersecurity Framework
The National Institute of Standards and Technology (NIST) is part of the US Department of Commerce. The NIST Cybersecurity Framework helps businesses understand and reduce their cybersecurity risk.
NIST protects your network and data. It specifically addresses the cyber risks in a business, which the COSO Framework doesn’t cover. You’ll also need to use other business-specific risk frameworks. But for general risks, use the COSO Framework.
Next, I’ll look at the components you should look out for in any ERM framework.
Components of an ERM Framework
Each ERM framework serves different purposes. However, all of them share a few fundamental objectives:
- Identify risks to operations
- Define and conduct risk reporting
- Conduct ERM in compliance with industrial or regulatory requirements
ERM frameworks must have the following components to achieve these objectives:
1. Control Environment
One of the critical purposes of an ERM framework is to set a baseline control environment. If you don’t know your control environment, you’ll be unable to assess changes accurately.
To set a controlled environment, you must have well-established business ethics. This means your mission statement should be well-defined, and you should set your business policies around core ideals. In addition, you must also have a distinct organizational structure for your business regulatory requirements and workflow.
You’ll also need to define business growth and assess counterproductive activities that can cause losses through employee competence. Finally, your HR policy should be progressive and should follow best practices. These policies help you retain employees and decrease staff turnover.
If you don’t properly monitor the control factors, you can’t have a controlled work environment or sufficiently understand your risks. Consequently, this will affect your business growth and how fast it can grow year-over-year.
2. Risk Assessment and Management
You must continually assess risks because the business environment is always changing. It’s better to perform risk assessments when planning a new project or alongside change management processes.
Usually, business operations include daily routine operations and projects with a start, middle, and end. Understanding your operations is important when defining your risk assessment and management strategy.
3. Control Activities
You can never entirely eliminate risk. What you can do, however, is tweak processes to reduce the impact.
For control activities, start with top-down planning and implementation. You’ll need to assess business policies and plan ahead for all situations. In addition, you’ll also need to consider third-party external risks, i.e., those coming from outsourcing and suppliers.
Further, you’ll need data control when working with external parties with access to your company’s data. It’s better to use the NIST framework to manage external risks.
4. Information and Communications
You must ensure good communication to implement an ERM framework. Your staff must work as a team. Good communication tools are necessary for smooth communication.
Since risk management and change management are connected, you should use an enterprise resource planning (ERP) system. This system will help you define clear communication channels. Additionally, it will automate task assignments and workflows to help you seamlessly manage processes.
5. Monitoring
You’ll need a monitoring strategy to understand how risk changes over time. You can use metrics, like staff turnover, to help measure risk management effectiveness.
If your company has a higher turnover, it could be due to the staff’s unmet needs. For instance, a lack of PPE best practices or the company’s HR policies may be to blame. That said, you can’t rely on one metric to provide you with a comprehensive assessment. You’ll need to combine a few related metrics to gauge the true risks to your business.
Moreover, monitoring is also useful for meeting regulatory audit requirements. In other words, you need effective monitoring to meet regulatory requirements.
These were the key ERM framework components for building your risk framework. Let’s now take a look at the steps to implement an ERM framework.
How to Implement an Enterprise Risk Management Framework
ERM frameworks require effectively communicating your business intentions. Importantly, you also need to ensure everyone’s onboard with implementing the change.
Set up steering committees and workshops to consult and gather input from your staff on the processes. Besides the staff’s input, these steps will succeed in winning their hearts and minds. When the staff is invested in the process, they’ll act in line with it.
To implement an ERM framework, you’ll need to follow the process below:
1. Build a Cross-Functional ERM Team
When deploying an ERM framework, select your ERM team. The members should belong to the diverse divisions and departments within the business. The team will report back to you about its activities.
You’ll need special help from your IT administrators. These experts will help with software-based ERM solutions and automated ERP workflows.
If you don’t have an ERM solution, add one after assessing your business’s change tolerance.
2. Identify Risk
Define all your business risks. The ERM team members will identify the risks in their respective departments and relay the information for processing.
3. Evaluate Risk
In addition to identifying each risk, you also need to assess its frequency and severity. To evaluate risk, assign the frequency and severity values to each risk and then multiply to get the weighted value.
If you are using risk evaluation forms, create a table highlighting both values, so the reviewer can quickly calculate the weighted value. Alternatively, you can also create a value range for the risks. The range’s values will determine the necessity for risk-mitigating actions.
Additionally, you need to determine the threshold risk by figuring out what level of risk would be tolerable. If any risk falls above the threshold, you should act immediately to neutralize or reduce it.
4. Prioritize Risk
After identifying all your risks, quantify their impact on your business. Doing so will help you prioritize risks based on their impact value. As a result, you’ll be able to address the largest risks to your business first. This will, in turn, reduce the overall risk to your business growth.
5. Address Risk
Now that you have prioritized the risks, you’ll have an easier time assigning resources to address those risks. Though the goal is to eliminate risk entirely, you may find that that’s not always practical. You can, however, reduce risk to tolerable levels.
6. Optimize Risk
Your risk tolerance will vary depending on the line of business you’re in. You’ll need to assess the progress you’re making against the risks. Are you on the right track toward achieving your objectives? If not, you’ll need to add more resources.
Risk optimization is a subjective process. However, you can objectively measure progress by comparing the recovery with a slump period in your business.
7. Monitoring and Assessment
Once you have a working ERM framework, you must monitor change requests and conduct risk assessments. You’ll need an ERP solution to track tasks and manage workflows.
That said, an ERM framework alone doesn’t provide a complete solution. You’ll need an ERM software solution to implement the framework.
In the next section, I’ll look at a few of the top ERM solutions on the market to help you get started.
Top 3 Enterprise Risk Management Solutions
Below are the top 3 ERM software solutions to help you effectively manage risk.
Let’s start with GFI’s KerioControl.
1. GFI’s KerioControl
GFI’s KerioControl is a complete ERM solution. It’s feature-rich and yet easy to use. KerioControl works with other GFI offerings to enable efficient workflows. Moreover, with KerioControl, you don’t need to worry about cybersecurity threats or other risks to your business.
The cherry on top is that KerioControl is a scalable Software as a Service (SaaS). This means you only pay for what you need and scale as your business grows. KerioControl also offers Next-generation firewall capabilities and an Intrusion prevention system (IPS) for enhanced security.
The more experienced administrators who’ve built business infrastructures will tell you that the software is the complete package. With KerioControl, you don’t need to migrate to other solutions every few years.
2. MasterControl Risk Management
MasterControl’s Risk Management solution offers your business a ready-for-audit status. Although you can expect all ERM solutions to offer audit-ready statuses, it’s MasterControl’s standout feature.
In MasterControl, you can access risk management through a centralized system. Further, its offerings allow you to manage risk by improving your quality management.
MasterControl primarily helps with production-related risks. It includes an out-of-specification feature that enables you to assess risk in terms of variation from nominal and operational conditions.
If you’re running a production line, you should consider MasterControl for regulatory compliance, risk-reduction strategies, and a real-time overview of various production-related risks.
3. CorityOne
CorityOne solution helps manage risks through quality management across an enterprise or supply chain. Cority claims its solution improves speed, accuracy, and insights and provides a unified approach for quality improvement measures.
Cority unifies content in a centralized system, removing the need for siloed systems and spreadsheet-based processes that restrict transparency across operational teams. As a result, production ramps up across supply chains.
Moreover, Cority is a cloud-based offering that improves quality solutions across the value chain. It allows all parties to view and manage risk. This makes it easier for multiple sites or partners to meet regulatory standards.
In short, Cority helps you manage risk and brand reputation. It also tackles consumer-side risks. If you need to manage supply-chain and enterprise risks, then CorityOne is an effective solution for you to consider.
Let’s wrap up.
Final Thoughts
An enterprise risk management framework ensures your success at risk management. A clear framework with defined risks and responsibilities is crucial for risk-resilient business growth. You’ll need an ERM solution to deliver and maintain your risk management framework.
In this article, I’ve gone through the two ERM framework types: the COSO and the NIST cybersecurity framework. I also touched on the components you should look out for to ensure your ERM framework can identify operations risks, conduct risk reporting, and conduct ERM in compliance with industrial or regulatory requirements.
Finally, I covered the process you need to follow when implementing an ERM framework and gave you the top ERM solutions in the market that you can use in different business applications. Choose between GFI’s KerioControl, MasterControl, and CorityOne depending on your business needs.
Do you have more questions on ERM? Check out the FAQ and Resources sections below.
FAQ
What is an ERM framework?
An enterprise risk management (ERM) framework defines your business’s risk strategy. When implementing ERM, you must first define the ERM framework and then create or adapt the business policy to the framework requirements. You can use industry standards, like the COSO framework, to ensure you don’t miss any risk management requirements.
Why do businesses need ERM?
Enterprise risk management (ERM) identifies and manages a business’s internal risks. These could be HR misconduct lawsuits, missing production equipment guards, etc. ERMs enable businesses to provide auditors with current risk reports. By managing risk effectively, you can increase productivity and business growth.
Should I get an ERM solution for my business?
Yes, enterprise risk management (ERM) solutions identify risks in your business and monitor the ones you can mitigate. An ERM solution is necessary, especially in the modern business environment, where multiple internal and external threats exist.
How can I reduce my business’s exposure to risk?
An enterprise risk management (ERM) solution helps you identify and monitor your business risks as your business grows. Often, addressing the issue will not mitigate the risks completely. Instead, you’ll need to monitor and ensure the risk stays tolerable. That’s where an ERM solution can help.
When should I consider getting an ERM solution?
You can implement an enterprise risk management (ERM) solution at any point in your business’s life. That said, the earlier you implement an ERM solution, the better. Consequently, you’ll experience fewer financial losses from risks.
Resources
TechGenix: Article on the COSO Framework
Learn about the COSO framework and how to implement it in your business.
TechGenix: Article on the Evolution of Cybersecurity
Discover what cybersecurity threats your enterprise risk management strategy must consider.
TechGenix: Article on The Top Risk Management Solutions
Find out what other risk management solutions are available on the market.
TechGenix: Article on COBIT
Learn from COBIT how you can improve your IT infrastructure and reduce your business’s risk.
TechGenix: Article on Cybersecurity Attack Vectors
Learn what attack vectors cybercriminals use to improve your risk management.
