Why ERM matters more than ever today
Photo by JESHOOTS.COM on Unsplash
In this day and age, ERM is more important than ever, and many businesses don’t realize how necessary it may be. Here are a few reasons why strong enterprise risk management is important, as well as a few of the downfalls you may face if it isn’t a focus.
Economic uncertainty
Economic uncertainty has always been a risk in business, and being able to deal with it effectively is a must, especially if you are a business that operates within or with a country that repeatedly faces instability.
Enterprise risk management software can help you navigate these uncertainties, and not only help your business get through recessions or market crashes, but even potentially come out the other side better than before.
Cybersecurity threats
Cybersecurity threats are a constant worry for businesses of all types and sizes. With more and more information and data being stored online, it has never been more important to protect your and your clients and customers’ information.
Without ERM, businesses may find themselves struggling to correct a breach or hack they may experience, and may not know how to fix any weaknesses that may be present, meaning they are vulnerable to further attacks and data theft.
Regulatory compliance
Compliance is a key area in business, and breaking compliance or legal rules can land your business in a world of trouble. However, a solid and effective ERM strategy will help you stay on top of compliance and regulatory changes.
Considering the wide variety of local and international laws your business may have to comply with, it is very easy to fall into a regulatory trap without ERM.
Decision making
Photo by Radission US on Unsplash
ERM provides businesses with better and more accurate data, which leads to a better decision-making process. In simple terms, ERM ensures risk is part of every area of the process, meaning riskier decisions can still be made with a solid safety net in place.
This also extends beyond the boardroom, as your employees will also have a strong risk-to-reward idea in their head, leading them to make better and smarter decisions as well.
Reputation
There is arguably nothing more important in business than your reputation. It influences who will work for you, who will buy your service or product, who will invest in your company, and almost everything in between.
An effective ERM strategy will allow you to predict any events that could harm your reputation, and allow you to be proactive in preventing said events or dealing with them in a way that protects your reputation as much as possible.
Downsides of not having a robust ERM
Now that you know a few of the biggest reasons why ERM is important, here are a few of the downsides to not having an effective ERM strategy in place.
Increased vulnerability
An unexpected crisis can send a business off course if it doesn’t have a strong ERM. Whether it is a natural disaster in the country from which you obtain raw materials, or a sudden downturn in fuel imports, causing your supply chain to be disrupted.
Enterprise risk management allows you to predict any potential crisis and put you in a position to deal with it effectively.
Inconsistent responses
Without ERM, and therefore without a risk management framework to follow, your responses to a crisis can be inconsistent and potentially even completely ineffective. In simple terms, when responses aren’t standardized, the effects can be catastrophic.
Missed opportunities
ERM isn’t just about protecting your business against risk, but to also helps you identify potential opportunities and new ways to grow. In other words, it is far easier to navigate a new route when you know what type of risk you may encounter.
This ties in with decision-making, as when you are making a choice to open a new factory, a new branch of your store, or even invest in a new type of vehicle, ERM makes it far easier to establish the right path to take that offers the most reward for as little risk as possible.
Lower investor confidence
Photo by Wesley Tingey on Unsplash
As mentioned previously, lower investor confidence can be a death knell for a business. When you don’t have your investors on your side, they may look to replace you, divest their money, or even blackball you, preventing any future investment.
The biggest issue with this is that there is very little room to grow further. While it may not be a worry for smaller businesses, it should still be kept in mind from the start.
Regulatory breaches
It can’t be overstated how important it is to remain compliant when it comes to doing business. Rules and regulations are constantly changing, and they become a minefield when you start operating branches of your business overseas.
Without an ERM strategy, you run the risk of being banned from doing business within a certain country, facing fines, or even finding yourself in court.
To conclude, the importance of ERM is paramount, now more than ever, and it shouldn’t matter if you are a small, local business, or a large, international conglomerate; ERM can most certainly be seen as the difference between success and failure.