Enterprise risk management (ERM) is a systematic approach to managing the various risks that a company faces. It is a broader concept than personal investment risk management as it includes not only financial risks but also a wide range of other risks such as operational, strategic, compliance, legal, and reputational risks. Here are some key considerations for enterprise risk management:
Identifying risks: The first step is to identify the risks that a company faces. This involves looking at both internal and external risks.
Assessing risk: Once the risks have been identified, the next step is to assess their likelihood and impact. This will help to prioritize which risks need to be addressed first.
Developing strategies: Based on the risk assessment, the company will develop strategies to manage the risks. This could involve reducing the risk, transferring the risk to another party, or accepting the risk.
Implementing risk management processes: The strategies need to be implemented through various processes, including policies, procedures, and controls. These processes will help to ensure that the risks are managed effectively.
Monitoring and reporting: The company will need to regularly monitor and report on the risks and the effectiveness of the risk management processes. This will help to ensure that the risks are being managed effectively and that any necessary changes are made.
In comparison to personal investment risk, enterprise risk management has to consider the risks of the entire organization and not just the individual investor. As a result, it is a more complex process that involves many different stakeholders and a wider range of risks.
