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Enterprise risk management (ERM) is critical for the successful execution of the organization’s strategy. Failure to identify, assess, manage and monitor key risks can have devastating effects on the long-term performance of the business. In order to successfully identify, assess, manage and monitor key risks managers need to establish and implement a compelling enterprise risk management structure within their organizations. When establishing ERM the question normally asked is, “Who owns the risk management process and who is responsible for what?” In some companies the CFO is responsible for all the risk management processes. In others the Chief Risk Officer (CRO) or the Head of ERM is the chief architect. Does this mean that the other personnel play no role in managing enterprise risks? Not at all. When establishing an ERM framework and culture it is critical to understand that neither the CRO, CFO nor the Head of Risk Management is solely responsible for the ownership of all the risks facing the organization. These personnel are responsible for properly reporting significant risk events and potential opportunities to the other senior management and the board members. You could also say that they own the organization’s risk management functionality itself. That is they are responsible for setting up the infrastructure for gathering risk information, setting risk responses, determining probability of occurrence and impact, discovering the root causes of risk, and the timely reporting of same. Risk ownership is every employee’s responsibility. In other words, all the organizational risks that confront the organization everyday are owned by everybody in the organization in the respective levels at which they operate. Take for example the sales employees or any other front-line employees. Their actions can either build or destroy the image of the bank through the relationships they form and constantly enhance with the customer base or by the ones they ruin. They also set the tone whether the customer is going to be interested in buying other services or products of the organization that are being offered. Thus these employees own their own set of risks and certain risks of the organization as well. To be successful at implementing ERM, the process must involve virtually every key person in the organization. The reason being that they possess greater influence over buy-in. If these people fail to embrace ERM, then ERM will never become an important part of the business on a day-to-day basis. To ensure that everyone within the organization make enterprise risk management an important aspect of their jobs it must always be approached as an environment that is owned by everybody for their own mutual benefit. The benefits of implementing ERM must outweigh the costs. In other words, the process must earn a return on investment that is deemed acceptable by the organization. If the benefits outweigh the costs the possibility of every key member of the organization embracing ERM and not just tolerating it as another one of those corporate fads is high. Everyone in the organization should want to actively participate in ERM. If ERM becomes a DNA of the enterprise, then it has a chance of attaining a high degree of success. I welcome your thoughts, comments and feedback. Related posts:
Leave a ReplyLeading in Uncertain TimesOne of the biggest challenges facing business leaders today is making the right decisions that will ensure their organizations succeed, survive, and remain competitive in an increasingly uncertain and complex environment. A recent post, The best way to lead in uncertain times may be to throw out the playbook, by Strategy+Business has several good points. The article is about the COVID-19 pandemic, how global companies navigated through the crisis, and how best to prepare for future disruptions. Here are some key points and my comments.
How are you preparing your organization for potential future disruptions? Related posts:
The Collaborative OrganizationThese days the term collaboration has become synonymous with organizational culture, creativity, innovation, increased productivity, and success. Let’s look at the COVID-19 pandemic as an example. At the peak of the crisis, several companies instructed their workers to adopt remote working as a health and safety precautionary measure. Two years into the pandemic, they are now asking their employees back to the office full time or are planning to adopt a hybrid model. The need to preserve our collaborative culture and accelerate innovation are two of the top benefits being cited by organizational and team leaders for bringing workers back. Collaboration is indeed essential for the achievement of team goals, functional objectives, and the overall success of the organization. Today’s breakthrough innovations are emerging from many interacting teams and collaborative relationships. When teams, functions, and organizations collaborate, the whole is greater than the sum of its parts; group genius emerges, and creativity unfolds. But, what makes a successful collaboration? What are the key enabling conditions?
How else are you championing collaboration within your organization to create value and succeed? Related posts:
Preparing for Geopolitical ShocksGeopolitical instability has steadily increased over the past years, and uncertainty in the global economy is at an all-time high. Thanks to globalization and advances in technologies, we now live and work in a tightly interconnected world, one in which the boundaries that previously separated domestic from global issues have disappeared. Threats are no longer confined to traditional political borders, social structures, and geographic boundaries. Geopolitical shifts have dramatically altered the global economic landscape and brought politics and business together. The rise of China as an economic and politically influential power has threatened the dominance of the United States as the world’s largest economy. Although the opening of China and a market of 1.4 billion people have benefited both countries, it has also intensified competition and sparked U.S. economic and technological espionage accusations against China, leading to strained relations between the two giants. U.S. companies operating from China have felt the impact of this tense relationship. The opposite is true for Chinese companies in the U.S. Across Europe, national populism is on the rise and now a serious force. In 2016, the United Kingdom shocked the world when it voted to leave the European Union, generating reverberating effects across markets. Banks and financial services companies that once benefited from the EU passporting system have had their cross-border banking and investment services to customers and counterparties in the many EU Member States impacted, causing them to reimagine their value proposition models. The recent invasion of Ukraine by Russia is another example of a geopolitical event that has had devastating effects on human livelihood and businesses. Although the conflict between the two countries has risen over the years, I think it’s fair to say that few political analysts, governments, and businesses predicted a war to happen. The war has created a humanitarian crisis, rattled global commodity and energy markets, caused prices to soar, and forced many international companies to temporarily suspend their Russian activities or completely cut ties with the country. Global supply chains which are already fragile and sensitive due to the COVID-19 pandemic are now facing new challenges in the aftermath of the Russia-Ukraine crisis. Multilateral economic sanctions have been imposed on Russia. A state of affairs that was unthinkable months ago and is now threatening to derail the nascent global economic recovery from the COVID-19 pandemic. Given the global domino effect of geopolitical events and the shrinking of the distance between markets and politics, the need to better understand and more effectively mitigate geopolitical risk has become more urgent. The business impacts, whether direct or indirect, vary by company type and industry sector. Your company may not be able to prevent wars between nations, but you can anticipate and better prepare for geopolitical shocks:
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Who in a corporate organization is primarily responsible for the organizational culture?CEO and senior management team: Define the desired culture and cultivate it through leadership actions including setting objectives, strategies, and key results that prioritize culture-building; and designing the organization and its operational processes to support and advance the company's purpose and core values.
Which of the following has the ultimate responsibility for all risks taken by the organization?Risk management responsibilities and organisation
The President is responsible for risk management and its organisation at Group level, including re-sourcing and reviewing the risk management principles.
Which of the following is the role of an internal auditor in an organization?The role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.
Which of the following members of an organization has ultimate ownership responsibility of the enterprise risk management?The chief executive officer (CEO) sets the tone at the top of the organization and has ultimate responsibility for ownership of the ERM.
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