Magazine article Risk Management

Removing the Barriers to Sound ERM

Magazine article Risk Management

Removing the Barriers to Sound ERM

Article excerpt

THE BUSINESS WORLD IS FRAUGHT WITH risks that have the potential to upend strategy. These vary in nature, but they all tend to emerge more quickly and pack a bigger punch than ever before. What's more, there are new kinds of risks posed by fast-moving innovations in technology, science and the ever-evolving realm of social media.

The bad news is that many organizations are ill-prepared. According to a recent study by business research firm APQC, only 26% of those surveyed described their ERM program as having an extensive reach. Only 43% reported moderate organizational involvement, and the remaining third is either just getting started or doing little.

There are several plausible explanations for the lack of progress. According to Rob Torok, a partner with BetterVu, "At some companies, there is a commonly held--although rarely expressed-sense that, for an organization to look good in front of stakeholders, it cannot admit to having risks." There may also be a sense that ERM process owners lack the clout or creativity needed to keep risk owners engaged in knowledge-sharing, or sometimes the ERM leader simply cannot get board members and/or the CEO to care that the current process does not measure up to best-practice standards.

Managing New Risks

Another concern underscored by the survey findings involves new forms of risks. Only 19% of organizations believe that their ERM process is effective when it comes to identifying risks that they may encounter in the future. Although more than half of respondents indicate that they are somewhat effective at imagining new types of risks, the risks that are easily dismissed as remote can inflict severe damage if they materialize.

This is why best-practice organizations develop group exercises to prompt decision-makers to think unconventionally. Saret Van Loggerenberg, the ERM leader at Exxaro Resources Ltd., a large South African mining company, explained why shifting the culture away from perfunctory risk assessment is so vital: "Exxaro is working to break silos not only in terms of functional areas, but also in terms of seniority levels. Our main vision is to teach people that risk management is about active thinking and not about checking boxes. …

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