INTEGRATION OF ERM WITH STRATEGY
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Integration of ERM with Strategy
Introduction
Enterprise Risk Management refers to a process that is flowing and ongoing that is applied in an organization for strategy setting. ERM is designed for identification of potential events that are likely to affect the organization, and for management of risk to remain within its risk appetite (Pierce & Goldstein., 2018). The whole process has to provide reasonable assurance concerning the achievement of organizational objectives. ERM must be effected by the management, board of directors and other personnel of an organization. It is important to note that every organization has its own strategic goals, and all business operations are geared towards the achievement of those strategic goals (Pierce et al., 2018).
Additionally, the management of an organization should meet the interests of the stakeholders of a given organization providing the best value out of business operations. Therefore, ERM is essential in the achievement of all these strategic goals in that it helps in the management of potential risks rather than eliminating risks. The management can apply ERM to deal with uncertainty, opportunities, and related risks effectively enhancing the desired capacity to build value.
ERM Strategy
There are different issues, methods, frameworks and protocols that are found in ERM strategy that can be used to assess the level of organization integration. Additions these can be used to determine how current ERM process can be improved more, especially the alignment of ERM with the process of strategic planning (Sax & Andersen., 2019). The approaches that can be used to integrate ERM with organizational strategy vary based on the nature of the organization. The same way ERM needs customization to fit the unique objectives of an organization, business model and culture, the integration of ERM with organizational strategy also requires an organization to take into consideration its culture and objectives before deciding the best approach to align the two processes (Pierce et al., 2018).
As a result of the shift in technology, industry changes, business cycles and globalization there is an increase in organizational complexity; thus, organization are vulnerable to more risks that are related to strategy (Sax et al., 2019). Therefore, the management has to come up with appropriate approaches and strategies that can be used to mitigate risks. The company managers can establish a link between risk management processes and strategic planning to ensure that there is a connection between suitable risk mitigation strategies and new strategic initiatives. Through this, the management will ensure that a timely evaluation of potential risks accompanies any change in company strategic direction and that the organization plans for identification of competitive advantages that are risk-related.
One of the best frameworks that serve as a foundation for understanding and implementing ERM is the generic framework that maintains focus on the clarity of strategy or objectives. The framework helps in identification of risks, assessment of risks, risks that appear to be of significant threat, controls of such risks and communication and monitoring of risks identified (Sax et al., 2019). This forms the basis for risk identification techniques and protocols that are followed that enable the risk management team to identify, assess and respond to potential risks within an organization. Some of the techniques that can be used to identify such risk include SWOT analysis, brainstorming, scenario analysis, and self-assessment (Pierce et al., 2018). For instance, once participants understand clearly stated objectives, brainstorming technique can be embraced to draw on participants creativity helping in the generation of a list of risks.
It is also important to note that many organizations run into issues as they try to integrate ERM with strategy more especially where risk professional do not communicate and demonstrate the value that ERM can add to the process of strategic planning. Some of these issues occur as a result of a lack of understanding of how an effective process of ERM can be informative to management in the execution of the strategic plan (Sax et al., 2019). Additionally, the organization may not have developed the strategic planning process well to make consideration of ERM as a strategic tool. Besides, organizations do not perform formal assessment of emerging, industrial, market and strategic risks; thus, lack of full knowledge about external risks. Another issue could arise as a result of rapid change in the business environment making many organizations unaware of external risks that are very vital and need to be considered in the development of a strategic plan.
Organizations can use ERM as a tool for protecting value or enhancing value. Therefore, ERM can be effectively implemented in organizations to serve as a strategy in addressing risks to the risks that are caused by external changes that were not foreseen during strategic plan development. Therefore, these new risks that occur as a result of future uncertainties must be addressed through ERM strategies (Pierce et al., 2018). Organizations can have an ERM program in place to act as a strategy in response to emerging risks, anticipate for future unknown risks as well as helping executives in the identification of current known risks. In this case, the management will be able to make decisions concerning what needs to be done in response to risk information obtained. Through suitable ERM strategy in place, it will be easy for the risk management team to identify and manage risks that are likely to limit the ability of an organization to achieve its strategic objectives (Sax et al., 2019).
Moreover, managers can use ERM as a strategy to explore new opportunities that their competitors may not explore; thus, gaining a competitive edge. For instance, ERM once applied well in an organization it acts as a strategy to gaining strength and exploring opportunities through taking of risks, and this, in return, can lead to a greater reward. Additionally, ERM can be used by an organization as a strategy to achieve the desired performance by making the right decisions about the ongoing processes. Organizations can also embrace ERM as a strategy to help them gain a competitive advantage and for strategic planning (Sax et al., 2019). When an organization has effective risk mitigation strategies in place, it is likely to increase competitive edge since business operations with have a continuous flow and no significant disruptions that may occur.
Conclusion
The integration of ERM with strategy allows organizations to be in a better position to identify, assess, and manage risks as well as growing the business through the enhancement of smooth business operations. Organizations that embrace ERM as a strategic can meet their strategic objectives and gain a competitive advantage over their competitors as they can explore new opportunities through taking risks to venture into those new opportunities. In the global economy, risks keep on changing and evolving; thus, ERM has to remain an ongoing and flowing process in an organization. It is important to note that the integration of ERM with organizational strategy needs a strong commitment by management and an effective process that is focused on each unique culture of an organization. An organization can significantly benefit from the implementation of ERM strategy since it can improve the performance and increase the efficiency with which strategic goals are achieved.
Moreover, this can increase the chances of success in making organizational decisions that would help in the achievement of set objectives. Lastly, ERM determines the health and life of any business enterprise, and if implemented successfully, it becomes easy to maintain the going concern of an organization. Therefore, every business enterprise has to integrate ERM with strategy more, especially in strategic planning since failure to do so means that the organization has to be prepared to face risks.
References
Pierce, E. M., & Goldstein, J. (2018). ERM and strategic planning: a change in paradigm. International Journal of Disclosure and Governance, 15(1), 51-59.
Sax, J., & Andersen, T. J. (2019). Making risk management strategic: Integrating enterprise risk management with strategic planning. European Management Review, 16(3), 719-740.