Risk is any negative impact or uncertainty that an organization may face, leading to undesirable outcomes or the inability to meet strategic objectives. Said another way, risk is the possibility for loss. Enterprise Risk Management (ERM), then, is a holistic approach organizations use to systematically identify, assess, and mitigate risks to avoid undesirable outcomes (e.g., losses) and meet strategic objectives. It is a baseline for establishing potential losses.
An effective ERM strategy will also include processes for strategic planning and effective decision-support methods and tools to support operations. While companies may approach ERM differently, an effective process often shares the same critical elements:
- Established risk-ranking criteria that assess impact and likelihood, and are applied to the areas of risk they manage
- An ISO 31000-aligned risk management framework that defines the overall risk appetite of the organization based on the pursuit of its objectives
- A risk registry that assembles risk contributors based on data to provide actionable insights
Because risk is dynamic in nature, new threats constantly emerge with varying consequences. An equally dynamic ERM strategy will help organizations determine their risk tolerance and tie risk to actual operations and operating conditions as they change (e.g., profitability, safety, equipment reliability, environmental compliance, etc.). Looking at risk through a single lens helps organizations better understand their collective impact when failures (losses) occur.
For risk-aware organizations, that single lens should be Enterprise Loss Prevention (ELP) because all risks are potential losses. ELP is a proactive approach to identifying and preventing losses that may occur when risk limits are exceeded. It also helps develop the action plan for managing risk and reducing loss—because operating with less loss over time leads to Operational Excellence.
When companies apply the right resources at the right time, they can drive out threats and mitigate risks to acceptable levels. Learn more about managing enterprise risk through ELP with OESuite® and the aggregate impact it has on the bottom line: https://drivingoe.com/focus-areas/enterprise-loss-prevention/.
