{"id":2627,"date":"2011-12-13T07:00:38","date_gmt":"2011-12-13T15:00:38","guid":{"rendered":"http:\/\/www.formtek.com\/blog\/?p=2627"},"modified":"2011-12-13T07:00:38","modified_gmt":"2011-12-13T15:00:38","slug":"enterprise-risk-management-erm-managers-learn-to-think-the-unthinkable","status":"publish","type":"post","link":"https:\/\/formtek.com\/blog\/enterprise-risk-management-erm-managers-learn-to-think-the-unthinkable\/","title":{"rendered":"Enterprise Risk Management: ERM Managers Learn to Think the Unthinkable"},"content":{"rendered":"<p>Enterprise Risk Management (ERM) is a management framework used by organizations for making decisions which balance risk against opportunity. \u00a0Core elements of ERM include concepts like internal control, regulatory compliance, and strategic planning. \u00a0 The goal of ERM is to appropriately balance risk with opportunity to build value for stakeholders in the organization. \u00a0The stakeholders include owners, management, employees, customers, regulators, and society.<\/p>\n<p>Within the ERM framework, when the risks of a given course of action are identified, the management of the organization draws up a response strategy to the perceived risks. \u00a0There are typically five courses of action which can be taken:<\/p>\n<ul>\n<li><strong>Stop <\/strong>or avoid the activity to eliminate the risk.<\/li>\n<li><strong>Decrease <\/strong>or limit the activity to minimize the risk.<\/li>\n<li><strong>Redesign <\/strong>alternate, less-risky, activities that accomplish the same or similar objective as the one with higher risk.<\/li>\n<li><strong>Insure <\/strong>against or move to share the risk with others.<\/li>\n<li><strong>Accept <\/strong>that the risk is necessary and take no additional action<\/li>\n<\/ul>\n<p>Enterprises need to define their level of &#8216;risk appetite&#8217;, or the amount of risk that they are willing to take on relative to how much they value their ultimate objective. \u00a0The complexity comes into play because of the many decisions and courses of action that are being undertaken simultaneously within an organization. \u00a0Risk appetite needs to factor in the impact of potentially multiple worst case events happening in close time proximity.\u00a0Different organizations, often because of the culture of the organization, will have different tolerances for risk, and risk appetites for an organization will often change over the course of time.<\/p>\n<p>A recent report by the <a title=\"Preparedness in the private sector\" href=\"http:\/\/www.conference-board.org\/publications\/publicationdetail.cfm?publicationid=2026&amp;subtopicid=30\" target=\"_blank\">Conference Board<\/a> identified the five key areas that make up the &#8216;preparedness&#8217; portion of their ERM strategies. \u00a0These five areas include physical security, IT security, business continuity, crises management, and pandemic planning. \u00a0Only about half of organizations felt that\u00a0IT security, business continuity and crises management were areas that were all well coordinated \u00a0with their ERM programs. \u00a0The report cautions that &#8220;companies need to reconsider the scope and operating procedures of their ERM program to ensure it is integrated with the company&#8217;s efforts to manage potentially catastrophic security risks.&#8221;<\/p>\n<p>At a recent conference on ERM in San Diego, <a title=\"Robert Torok bio\" href=\"https:\/\/www-304.ibm.com\/profiles\/html\/profileView.do?key=16c0bc7b-a33a-4dda-8543-29d47852e1ec&amp;lang=en\" target=\"_blank\">Robert Torok<\/a>, executive consultant at IBM Canada, <a title=\"Robert Torok on Risk management\" href=\"http:\/\/www.businessinsurance.com\/article\/20111106\/NEWS06\/311069990?tags=%7C71%7C302\" target=\"_blank\">commented <\/a>that &#8220;The biggest change that has taken place in the past 10 years [in ERM] is the moving away from a compliance- and insurance-based focus. \u00a0The ERM manager responsibility will not be to stop the organization from stumbling by not complying with something. \u00a0It will be to find that next big thing&#8230; \u00a0The one thing as a risk manager you can&#8217;t allow your organization to say is, &#8216;That can&#8217;t happen to us.&#8217; &#8221; \u00a0Enterprise Risk managers need to try to &#8220;think the unthinkable.&#8221;<\/p>\n<div class=\"lightsocial_container\"><div class=\"lightsocial_element\"><a class=\"lightsocial_a\" href=\"http:\/\/digg.com\/submit?url=https%3A%2F%2Fformtek.com%2Fblog%2Fenterprise-risk-management-erm-managers-learn-to-think-the-unthinkable%2F&amp;title=\" target=\"_blank\"><img decoding=\"async\" class=\"lightsocial_img\" src=\"https:\/\/formtek.com\/blog\/wp-content\/plugins\/light-social\/digg.png\" alt=\"Digg This\" title=\"Digg This\" \/><\/a><\/div><div class=\"lightsocial_element\"><a class=\"lightsocial_a\" 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