Easy does it with ERM - letters to the editor - Letter to the Editor

YOUR SPECIAL REPORT ON ERM ("Fear Factor," June) states that many companies have found enterprise risk management to be useful in theory hut tedious in practice. From our client experience, this is not usually true. ERM, when integrated into a company's existing processes, does not require additional effort, and may make employees' jobs easier. It becomes tedious when an employee is required to do extra work to meet the demands of an unintegrated ERM system.

Best practices in ERM go far beyond just polling managers to see what they think are risks and then having another department calculate what they believe are the severity and probability of the risk. In fact, this would create a disconnect that would sabotage any effective efforts. Best practices demand that you get managers from different disciplines together to identify and rationalize risks that are based on the overall objectives of the organization. It is possible to quantify risks using statistical modeling techniques that get you to accurate numbers that can be used in planning and monitoring responses to the risk.

Best practices in risk mapping also include the use of risk tolerance. This tells you how much risk a company is able to absorb based on its capital structure. Without knowing if a risk is inside or outside of tolerance, you may be taking actions on risks that only need to be monitored.

Best practices are linked to driving performance, not just understanding what you think your risks are. Best practices include demonstrating to the board and senior management the impact of risk on earnings per share and measuring the benefits of an ERM program itself. Polling managers to assess risk and risk mapping are rudimentary tools, not best practices.

ERM does not have to be expensive. It can be implemented in pieces, starting with the major business processes such as strategic planning, budgeting, internal audit, corporate-governance/ Sarbanes-Oxley compliance, and mergers and acquisitions.

Mary Jean Herron

Via E-mail

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