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How to Implement Effective Enterprise Risk Management

17 July 2013 by Software AG

Over the past few years, organizations are more focused on "being in control." They are increasingly - often forced by regulations - building and implementing processes that underpin the company's "In Control Statement."

The inevitable extra costs and efforts are often seen as a burden, distracting people from what they should focus on: doing business. At the same time, organizations are more aware than ever of the importance of managing risks.

One reason is that financial disasters, which seem to occur on a regular basis, remind us of the perils of "not getting it right." Creating value or doing business is impossible without taking risks. So how much risk can a business take?

How much uncertainty is acceptable given the objective of creating value? Enterprise Risk Management (ERM) helps organizations deal with these critical issues. It enables companies to identify events related to achieving a certain objective, which leads to identifying risks or opportunities.

The disadvantage of "control" is combined with the benefits of new opportunities identified as part of the risk management process. Effective ERM helps management to reliably achieve its objectives. But ERM, no matter how well designed and operated, does not ensure an organization's success.

Meeting objectives is also affected by limitations inherent in all business processes. ERM does not change an intrinsically poor process into a good one. Risk management means consciously balancing seemingly competing goals like minimal process cycle time and cost, with output quality and (regulatory) compliance.

Therefore, it's crucial to align ERM with business performance. Providing the up-to-date and comprehensive view on business performance (revenue driver) and compliance performance (cost driver), creates the transparency fundamental to good decision-making.

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