Accounting

How to implement successful enterprise risk management

Harry Cendrowski, Managing director, Cendrowski Corporate Advisors

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In today’s global economy, companies face numerous threats — geopolitical instability, supply chain interruption, ever-changing legislation, uncertain economies, tighter credit markets and transformative technologies each present a formidable challenge to today’s businesses.

However, by establishing effective enterprise risk management (ERM) processes, organizations can mitigate risks and identify new opportunities for growth.

“Enterprise risk management is a dynamic, complex process,” says Harry Cendrowski, the managing director of Cendrowski Corporate Advisors. “In order for risk mitigation to occur, all components of this process must work in concert with one another.”

Smart Business learned more from Cendrowski about ERM and how it can assist businesses in mitigating risks.

What are the essential components of ERM processes?

There are numerous components of ERM processes that must be in place in order for effective risk mitigation to occur:

• A culture of risk awareness
• Clear communication of a corporate risk/reward strategy
• Active risk event identification
• Continuous assessment of risks
• Timely response to identified risks
• Sound data collection and communication procedures
• Monitoring functions that ensure risks are being properly managed

Each of these components is critical to risk management processes: an ERM process is only as good as its weakest element.

How can organizations institute a culture of risk awareness?

Culture itself is not something that can be instituted — it is largely a byproduct of management’s actions. Management must set a proper tone at the top that rewards employees for their awareness of risks rather than punishes them for bringing risks to the forefront.

Channels must also exist for employees to bring potential risks directly to the attention of management. This is often a challenge for many organizations — channels of communication frequently flow downward, but less frequently upward.

For companies with boards of directors, these individuals can help ensure management’s actions promote a culture of risk awareness. While the board itself is not responsible for an organization’s day-to-day operations, it is responsible for ensuring management carries out the company’s strategic vision and adheres to an established risk management policy.