Avoiding Reputational Harm and Financial Loss with ERM
What happens when your company’s reputation is damaged? In the event of scandal or costly litigation, there’s financial loss, harm to employees and customers, and your brand suffers.
Although every industry faces unique challenges, it’s the responsibility of managers to identify risks to your reputation. But what’s the most effective risk identification technique?
Identify Root-Cause Risks
Organizations that fail to address risk until it is too late often share common underlying problems. Lower levels of the enterprise might have known about a risky business decision, but it wasn’t properly communicated to higher-level leaders.
Employee negligence, however, is no excuse. Ultimately, leadership enacts policies and allocates resources. The executive level dictates the culture, training and resources of an organization’s ERM program.
An ERM can identify and mitigate root-cause risks and avoid a company-wide disaster. By identifying risks, businesses can anticipate what lies ahead, allocate resources efficiently, prevent failures and ensure business performance. The key to preventing adverse events is creating a culture of collaboration between the proper parties: risk managers, business unit owners and the C-suite.
Implementing A Proper Risk Hierarchy
A successful ERM program must appoint risk owners. These are often the business unit leaders with P&L responsibility. They must be conditioned to think of themselves as risk owners. Different than risk managers, risk owners are on the frontlines and are the most familiar with an organization’s daily risks.
ERM collates risk owner knowledge by building enterprise-wide information connections. Risk managers and risk owners can partner for risk assessments, which are essential to your ERM approach. Risk assessments are the simplest and clearest way for risk managers to understand what risk owners see and experience in the business.
By engaging risk owners in these risk assessments, risk managers ensure that the most accurate and current information is used to identify, assess and mitigate operational risks. Unfortunately, even the most prepared business units still face challenges.
Demonstrating Effective Risk Management
When a lapse is discovered, a thorough ERM program can serve as a defense against punitive penalties and litigation. Management’s failure to disclose risk is a large part of determining negligence, so demonstrating that management is actively ascertaining risk on the front lines is critical.
Federal sentencing guidelines can offer relief from negligence claims for individuals and organizations if effective risk management is proven. An ERM program provides the necessary documentation and reporting you need to survive a crisis.
Risk managers, risk owners and leadership must work together to identify root-cause risks before it’s too late. Fortunately, an ERM program’s processes, policies and collaboration can prevent or, at the very least, lessen the toll of a catastrophic event.
Procipient® can simplify and strengthen your ERM program. Request a demo of Procipient® today to learn how the ERM solution helps you plan for future risk, assess your current risk culture, remediate any current issues and address past incidents.
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