APPETITE FOR RISK: DESIGNING AND IMPLEMENTING AN EFFECTIVE ERM FRAMEWORK
Risks are ever-present in the world of business. A veritable cavalcade of ifs, buts and maybes which, if left unattended, have the potential to derail, perhaps even destroy, an organisation’s operations.
How risk is managed, therefore, should be considered an organisational priority by businesses – particularly in a world of increasing complexity and risk, as evidenced by global crises such as the coronavirus (COVID-19) pandemic and the war between Russia and Ukraine – with an enterprise risk management (ERM) framework a key component.
As defined by Dataconomy, ERM is an architecture for risk management that comprises five main elements: continuity of operations, prevention and detection, response, mitigation and recovery. It follows a structure based on identifying key events or circumstances connected to a businesses’ goals (threats and opportunities), assessing their probability and consequence, determining a reaction strategy and monitoring the process.
Boiled down, an effective ERM programme enables businesses to intelligently manage the major enterprise risks – financial, strategic, compliance, operational, and health and safety – as well as view the full spectrum from all perspectives within an entity, and systematically anticipate and prepare an integrated response to potentially significant risks, both extant and emerging.
In addition to the Russia/Ukraine conflict and lingering pandemic-related concerns, risks identified by Protiviti in its ‘Top Risk for 2022: A Global Perspective’ include: (i) government public health policies and protocols; (ii) succession challenges and attracting and retaining top talent; (iii) adopted digital technologies requiring employee upskilling; (iv) economic conditions; (v) increased labour costs; (vi) business resistance to change; (vii) utilising advanced data analytics to achieve market intelligence; (viii) cyber threats; and (ix) expectations surrounding diversity, equity and inclusion.
Jul-Sep 2022 Issue
Fraser Tennant