How to Create a Lasting Enterprise Risk Management Program

An effective Enterprise Risk Management (ERM) program is vital to identifying, evaluating, and handling potential threats to your organization.

By embedding enterprise risk management into your operations, you can make informed decisions that protect your organization and support long-term growth. Each step, from structuring your ERM program to regularly updating it, plays a critical role in keeping your organization secure.

Here are  the four areas to focus on when building your ERM program so it delivers lasting value to your organization:

• Structure your ERM program appropriately
• Utilize collaborative risk scoring
• Establish effective responses
• Maintain your ERM program

Structure Your ERM Program Appropriately

To build your ERM program, it’s essential to recognize your organization's unique risk landscape. Understanding how various business activities connect allows you to uncover and tackle hidden risks with a structured plan.

This process ensures that your program isn’t just a set of vague guidelines but an integrated part of daily operations.

Here are the steps to help you create a solid ERM program that supports both immediate needs and long-term growth:

1. Identify Business Unit and Business Process Relationships: Begin by mapping the relationships between your various business units and their processes. This understanding of your operational landscape will help you accurately identify potential risk areas.
2. Identify Activities that Create or Attract Risk: Collaborate with stakeholders to analyze the activities within each business unit and identify those that create or attract risks. This step ensures a thorough and well-rounded evaluation of any risk opportunities.
3. Recognize “What Can Go Wrong” Within Each Activity: Engage in scenario planning and risk modeling to anticipate potential risk events. By envisioning various "What can go wrong" scenarios, it becomes easier to understand the practical implications of the risks you face.
4. Define and Create a Risk Inventory: Consolidate your findings into a structured risk inventory, which serves as your organization’s “Risk Universe.” This inventory reflects the collective understanding and input from all stakeholders.
5. Assess and Score Your Risks: Use a collaborative scoring methodology (detailed below) to evaluate your potential risks. Stakeholder insights can help refine your scores during this step, as they’ll help to consider all risk factors and offsets, resulting in a more accurate assessment of your exposures.
6. Determine a Risk Response Strategy: The final step involves determining each risk's appropriate course of action. Depending on the nature of the risk and potential impact, mitigation measures, risk transfer strategies, or acceptance of certain risks can be implemented.

Utilize Collaborative Risk Scoring

A collaborative risk-scoring methodology involves stakeholders evaluating the impact and probability of your potential risk events while also considering risk offsets. Use an impact scale from 1 to 5, where 1 means insignificant impact and 5 means significant financial losses. Similarly, the probability scale ranges from 1 to 5, where 1 is “Rare,” and 5 is "Almost Certain."

You must also acknowledge that your risk scores may not always provide a complete understanding. Collaborate with stakeholders to temper these scores by considering mitigating factors and risk offsets, such as existing controls and policies. This additional approach ensures a more nuanced understanding of your true exposures.

"From our experience, we’ve seen the most success with clients who adopt a collaborative approach."

"From our experience, we’ve seen the most success with clients who adopt a collaborative approach," said David Varner, Solution Lead at Clearview Group. “It empowers them to prioritize mitigation efforts, develop tailored risk management strategies, and confidently navigate the risk landscape.”

Establish Effective Responses

After identifying and scoring risks, the focus shifts to crafting appropriate responses. Each risk may call for a different action, from completely avoiding it to transferring responsibility.

Tailoring your response to the nature of the risk ensures you mitigate potential damage while keeping your objectives in mind. The following response strategies will help you approach risks in a way that protects your organization and preserves its growth:

• Avoid: Deciding not to proceed with the activity that introduces unacceptable risk, choosing an alternative that meets business objectives, or selecting a less risky approach.
• Reduce: Implementing strategies designed to lower the likelihood or impact of the risk to an acceptable level when elimination is excessive in terms of time or expense.
• Share: Sharing the risk with another party, such as co-sourcing the management of physical assets. The third party must be aware of and agree to accept this obligation.
• Transfer: Transferring the risk to another party, such as through outsourcing contracts or insurance. The third party must be aware of and agree to accept this obligation.
• Hedge: Taking offsetting positions or actions to minimize potential failure while maintaining the potential for success.
• Accept: Making an informed decision that the risk level is acceptable or that the cost of treatment outweighs the benefit. This option may be relevant when residual risk remains after implementing other treatment options. Ongoing monitoring is recommended even if no further action is taken.

Maintain Your ERM Program

A strong ERM program is not a one-time effort – it requires ongoing attention to remain effective. As your organization evolves, so do the risks it faces. Regularly revisiting and updating your risk management strategies ensures that your program stays relevant and continues to provide value.

By keeping your ERM program up-to-date, you can better protect your organization and adapt to new challenges. The following steps will help you maintain a dynamic, responsive, and lasting ERM program:

1. Program Maintenance and Risk Inventory Refreshing: Your risk inventory should be regularly updated to track new risks, changes in the business environment, and the results of past efforts. Regular maintenance also involves reviewing and updating risk management policies and procedures to stay current with best practices and regulations.
2. Periodic Assessment and Scoring: Conduct regular and ongoing risk assessments by incorporating steps like collaborative scoring for both impact and probability. This will help you effectively prioritize your risks. Continuous assessment also ensures new risks are identified and evaluated promptly using stakeholder insights.
3. Continuous Reporting and Response: Regular reporting keeps everyone informed, updating stakeholders on the current risk landscape, the status of mitigation efforts, and any changes in risk exposure. Effective communication ensures everyone knows their roles in risk management. Continuous response mechanisms allow your organization to adapt dynamically to any new risks.

"A cyclical and continuous approach enables organizations to systematically identify, assess, prioritize, and manage risks,” said Varner. “By regularly revisiting and refining their risk management processes, companies can proactively address emerging threats and opportunities, ensuring they remain resilient in a dynamic environment. This safeguards the organization and enhances its long-term value and strategic agility."

“By regularly revisiting and refining their risk management processes, companies can proactively address emerging threats and opportunities, ensuring they remain resilient in a dynamic environment."

At Clearview Group, we’re committed to equipping organizations with the tools and strategies needed to confidently navigate their risk landscape. Let us help you design an ERM program that is relevant and valuable to your organization.

Get started with Enterprise Risk Management.