An Introduction to Enterprise Risk Management

An Introduction to Enterprise Risk Management

Risk management is a fundamental principle in any organization, since risk is a reality that needs to be dealt with; irrespective of the business model. There is no straightforward formula for determining how much risk should be allowed by any given organization; for it to get some value or create business opportunities that they can exploit. This poses a serious challenge for most businesses, since all business decisions present either; an opportunity or risk to the company's capital base and revenue. A company must therefore, have in place a stringent risk management solution or policy; in order to reduce the impact of risk on its revenue.

Risk is often associated with negative outcomes within an organization; hence it is avoided at all costs. This however, is not the right approach, since the process of identifying opportunities that can be exploited by an organization also involves taking risk. Therefore, when risk is managed correctly, it can create opportunities; but if poorly managed, it leads to negative outcomes.

Enterprise Risk Management is the process of optimizing and controlling risk in an organization. This includes any method and framework that is utilized to either; seize opportunities that will benefit the business; or plan, organize, and control all activities that may limit the impact of risk on the company's financial status.

Enterprise Risk Management is the latest form of risk management solution which takes a holistic view of all uncertain factors that may affect a company's tangible and intangible assets. ERM, unlike any traditional risk management solution, has a different approach as far as objective, focus, emphasis, scope and application are concerned. The purpose of ERM is to prepare an organization to handle risk; by integrating strategy, knowledge, processes, people, and technology.

Banking software is a good example of applications that put Enterprise Risk Management into practice. The software comes with modules that are meant to improve the performance of the business and at the same time optimize the cost of risk management. These modules include the content management system and wholesale lending component.

The content management system in banking software is important in risk management, since it is used for organizing and managing client information, employee data, collateral based securities and other confidential documents. The wholesale lending module, on the other hand, is a critical tool for credit risk management. This module has the ability to define products and work-flow data, and comes with powerful reporting capabilities. The wholesale lending module has tools for financial and ratio analysis; giving banking software risk analysis capabilities. Integration between this module and the content management system allows the software to manage portfolio, credit scores and rating, and customers.

In implementing Enterprise Risk Management, it is imperative that an organization first understands the full scale of risk that is to be mitigated. First, objectives should be set by taking into consideration the organization's capabilities. Then, an implementation plan should be developed and responsibilities for designing, implementing and monitoring be allocated. The risk management process should then be incorporated into the company's policies.

ERM is all about taking strategic risk; that an organization is able to comply with and control, in order to spur growth and improve performance. An organization therefore needs to learn how to properly manage risk in order to create value and opportunities that can benefit them.

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