Any business, no matter its size or industry, will face a measure of organizational risk from a variety of sources. Organizational risk is an umbrella term that encompasses concerns of data privacy, employee safety, financial crime, compliance, and more. Risks may come both from within or outside of the company, and companies also differ widely in terms of what they consider major sources of organizational risk.
The framework companies use for managing organizational risk is referred to as enterprise risk management (ERM). ERM frameworks are compo of the processes and principles a business uses to anticipate and mitigate risks. Risk management is important not only for keeping an organization’s profits, employees, operations, and stakeholders safe from harm, but also for enabling the company to meet its business goals.
In recent years, the rise of digital technology has done much to elevate ERM for companies around the world. More and more businesses today employ robust risk management software solutions to make their risk assessment and mitigation efforts more effective and efficient. Truly, increasing digitization has transformed risk management in the following ways:
Enterprise-Wide Approach to ERM
Many companies’ traditional approach to ERM has been to delegate risk management duties to particular individuals or teams instead of involving the entire company. This fragmented, siloed approach can make it difficult for teams to gather and share risk-related information, which can lead to faulty insights and ineffective risk management strategies. Experts on enterprise risk instead counsel that ERM frameworks be applied companywide, covering all organizational functions and procedures.
Modern ERM solutions make it easier for companies to adopt an enterprise-wide approach to risk management because they are generally built to integrate frictionlessly into an organization’s current systems. The software’s functions can be incorporated into the company’s human resources, finance, supply chain, and other essential processes to drive successful risk management for the entire organization. This more comprehensive approach to risk management has been proven to produce better and more consistent results for businesses compared to traditional siloed methods.
Ultimately, an effective modern ERM framework should work to foster a culture of risk awareness and risk responsiveness throughout the entire organization. Digital technology makes this possible by providing companies with integrated software solutions that all employees can readily use. In turn, a risk-aware organizational culture helps employees make more informed business decisions and take effective action, regardless of their position within the said organization.
Agile and User-Friendly Solutions
Because modern ERM is performed company-wide, digital ERM solutions are generally designed to be as simple and intuitive to use as possible. This is to ensure that even a large number of employees across a vast variety of departments and roles won’t have a hard time accessing and operating the software. User-friendly data input tools, in particular, facilitate the smooth, consistent, and timely collection and storage of risk-related information.
Furthermore, many effective risk management solutions are now cloud-enabled to facilitate smooth and efficient workflows for multiple users and devices. Cloud-based ERM software enables a company’s employees to contribute easily to its risk management efforts wherever they might be located. This flexibility is a must for encouraging employee participation and maximizing operational efficiency, especially for companies that offer hybrid or remote working setups.
Legacy ERM systems are frequently distributed across a mix of disparate tools and platforms, such as spreadsheets, websites, and email clients. Unfortunately, many of these platforms come equipped with suboptimal security features, if any. Thus, an unconsolidated ERM system is often plagued by operational inefficiencies as well as company security and data privacy compromises. To make matters worse, the data breaches that can result from poor cybersecurity can cost a company dearly in terms of time, resources, and reputational damage.
Modern ERM solutions instead consolidate a company’s risk information and risk management activities on a single secure platform. These platforms incorporate only the best security tools currently available, including high-level encryption and granular control over user access permissions.
More Intensive Stress Testing
Companies typically conduct stress tests to assess their resource management and financial resilience. Risk management software can help companies streamline stress testing procedures and optimize their use of resources during stress tests. Important parts of the stress testing process (such as data-gathering, overlays, and reporting) can be automated to reduce the need for repetitive manual labor. Built-in risk reporting tools and standardized templates also make it easier for the company to collect, consolidate, and prepare risk data for future analysis.
Timely and Flawless Compliance
Keeping up with ever-changing regulatory mandates is a challenge modern companies must grapple with in many areas, and risk management is no exception.
The good news is that many digital ERM solutions are fundamentally designed to comply with established industry standards and best practices. They are also agile enough to satisfy evolving compliance demands as they come. Should regulators require more frequent or detailed reports, the use of specific templates, or even access to a company’s stores of raw data, a robust ERM system will enable organizations to respond promptly.
Digital technology has opened doors for risk management to become more comprehensive, resource-efficient, and effective. Companies today would thus benefit from continually exploring these solutions in the interest of improving their ERM frameworks. The right risk management solutions will not only minimize potential harms to organizations and their stakeholders, but will also help these enterprises achieve their key objectives.