The enterprise risk management process helps businesses identify hidden dangers. If used correctly, it could also uncover opportunity. James P. Martin, managing director for Cendrowski Corporate Advisors LLC, shares how risk management is beneficial.
Q. How might risk affect company value?
A. Risks are uncertainties in the business environment. Alone, they do not degrade a company’s value. Degradation of value often comes from management making poor decisions based on incomplete or erroneous information. Sometimes, this is from long-standing assumptions about the business or the competitive environment that are not founded in fact.
The objective of enterprise risk management is to engage the entire organization in a continuous and proactive discussion about risk, about what could go wrong, and to proactively plan to mitigate risk and perhaps even capitalize on risk events.
When implementing an enterprise risk management process, it’s important to include participants from all levels of the organization — people throughout the organization will have a different perspective on risk and about how things really operate. Senior management will tend to focus on strategic issues, while process operators will tend to focus on process anomalies and nonconformances. The enterprise risk management process should bring these perspectives together.
For example, senior management may have a strategic initiative to increase customer satisfaction scores by a certain percent. The process operators with direct knowledge of customer order fulfillment, including knowledge of complaints and processing issues, would have vital information to help accomplish the strategic initiative. Too often, without a process to gather, analyze and organize such information, companies overlook the wealth of information they have within their own organization. The enterprise risk management system should help facilitate this information flow and allow everyone within the organization to understand their role in accomplishing organizational objectives.
James P. Martin, CMA, CIA, CFE, is managing director for Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or firstname.lastname@example.org.