Enterprise Risk Management Approaches

At Reasoned Advisory, we spend our days thinking about how to form practical risk strategies for clients with- and without Enterprise Risk Management (ERM) programs, so that any financial resource decision they make is more grounded in what is best for the organization now, going forward, and under stress. When a client has an effective ERM program, it can be an accelerator to addressing these questions. That said, there is a wide difference between effective and ineffective programs and unfortunately many clients assume ERM is forever broken given a bad experience.

To confuse matters more, the term ‘ERM’ has many connotations. For counsel, it means ensuring proper contractual protections. For property managers, it may be where to hang the fire extinguishers. As executives, you may be aware of the ‘ERM’ industry with various layers of support from academics and sub-industry organizations. All are worthy pursuits. Finance-oriented professionals may also recognize the confusion introduced by consultants and bankers who have evolved their asset-liability management models to better include fluctuations of operating performance and adopting the term ERM models.

In the end, it cannot be an academic exercise; it must be practical. But it also must be richer than a single model offers. Black boxes do little to persuade. So, with that angle in mind, both analytics and logical frameworks must work together, with the secret ingredient of trusted communication. Like most disciplines, ERM is ever evolving and still has many gaps to address. Reasoned Advisory’s contribution to its advancement is ‘simply’ to connect the organizational risks with the organization’s financial capacities. As future trends become less clear and resources become scarce, consider the role of risk strategy in your organization. Undoubtedly, it will have a role.