3 Biggest Obstacles to Strategic Risk Management

Steven Minsky | Aug. 21, 2013

Strategic Risk Management and Enterprise Risk Management are invariably linked. Organizations focusing on Strategic Risk Management (SRM) understand that it’s not always an individual risk that results in a loss event, but the failure to adequately account for a number of related risks, goals, or requirements.

Examining the adoption of SRM, Rodd Zolkos of Business Insurance finds a great deal of overlap with the core principals of Enterprise Risk Management. His article, “Interest in strategic risk management grows, as boards push to adopt initiatives,” identifies a number of concerns preventing organizations from adopting formalized risk management processes, even as boards, ratings agencies, and regulators push for stronger programs.

Among the common challenges faced by businesses implementing Strategic Risk Management – defining a risk appetite statement, poor internal communications, and tracking measurable results – many, if not all, can be addressed with an ERM Solution.

1. Define a Risk Appetite

A risk appetite is no longer a theoretical concept. Regulations like RMORSA and Solvency II (with more sure to come) require organizations to define levels of exposure with which they are comfortable. Defining a risk appetite by tracking risk assessments, setting quantitative and qualitative criteria, and taking into consideration a risk’s unique impact on financial metrics, external relationships, and most importantly, strategic goals, is nearly impossible to accomplish with two dimensional spreadsheets. An ERM software solution will automate the organization of data, taking care of the aggregation so that risk managers can react to trends instead of loss events.

2Improve Internal Communications

Engaging stakeholders is critical to Strategic Risk Management. If employees are unaware of how their responsibilities relate to the big picture, strategic goals remain abstract instead of actionable. The best way to engage employees is by providing them with a tool that accomplishes the more frustrating aspects of their work, like preparing for audits and documenting metrics, so that they can spend more time on the value add activities that make them more productive. Having process owners manage risk is a complex undertaking, but equip them with tools that prepare their department for audit, and risk management will follow suit.

3. Track Measurable Results

What’s more important to the board than implementing Strategic Risk Management? Documenting measurable, quantitative results. With flexible reporting capabilities, the right ERM solution allows your organization to measure its progress against industry accepted risk management frameworks like the RIMS Risk Maturity Model, COSO, or ISO. Watch as your organization’s risk management program matures, and evolves into a core business competency.

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