Risk Management: What it is & Why it Matters
Risk management is the process of identifying, assessing, and managing risks in an organization. It includes both the identification of risks and the implementation of controls to mitigate those risks.
There are many different approaches to risk management, but all have the same goal: to protect the organization from exposure to potential losses.
The Importance of Risk Management
Businesses today are under more pressure than ever to protect themselves and their customers or clients from many risks. Without proper risk management, an organization is exposed to several potential losses, including financial losses, reputational damage, and legal liability.
Risk management is crucial because it helps organizations protect themselves from potential threats. By identifying and assessing risks, organizations can be better prepared to deal with them if they do occur.
When potential risks are identified and managed effectively, organizations can avoid or minimize the impact of those risks. This can save the organization money, time, and resources that would otherwise be spent dealing with unmitigated consequences.
Integrated Risk Management
Integrated risk management (IRM) is a holistic approach to managing risk that considers all the different types of risks a business faces. That includes everything from financial to operational to reputational risks. By taking a comprehensive view of business risks, business leaders and strategists can develop a more effective and efficient way to manage them.
More specifically, IRM is the overall process of implementing technical controls and features across a system or organization. These include IT infrastructure monitoring, data controls, and “perimeter” protection.
One of the benefits of IRM is that it allows you to develop custom solutions for each type of risk. That means you can tailor your approach to managing risks in a way that makes the most sense for units and departments within your business.
For example, if you’re primarily concerned with financial risks, you can develop a financial management strategy that focuses on mitigating those risks.
Enterprise Risk Management
Enterprise risk management (ERM) is similar to IRM in that it also considers all the different types of risks a business faces as part of a company- or organization-wide strategy. However, ERM goes one step further by considering the risks‘ interrelationships. By understanding how different types of risks are connected, you can develop a more comprehensive and effective way to manage them.
One of the benefits of ERM is that it helps businesses identify new types of risks they may not have considered before. For example, if you’re primarily focused on financial risks, you may not realize that certain uncontrolled operational risks are impacting reputational, which in turn affects your bottom line. ERM helps connect the dots between IRM controls, and IRM helps inform ERM strategy.
By understanding how different types of risks are connected, ERM can help businesses identify and address new types of risks before they have a chance to cause serious damage.
Integrated Risk Management vs Enterprise Risk Management
Both integrated risk management and enterprise risk management can be effective approaches to managing risk, but they provide the most advantages when they are used together in line with the scale and scope of an enterprise’s operational structure.
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