What is enterprise risk management (ERM)?
Enterprise risk management is the process of evaluating all the risks associated with a business or organisation.
It allows businesses to identify possible issues and hazards that may happen in the future, and plan accordingly.
By considering future events that may interfere with profits or operation, a business can put a plan in place to deal with these events, or even prevent them before they occur.
The idea is that the organisation is assessed as a whole, rather than individual departments or areas. This ensures any decisions take into account every aspect of the business and can help pick up recurring problems across different divisions.
Risks are labile, so ERM is a constant and evolving process that needs continual updating to be effective.
The process involves a cycle of steps:
As the idea is to provide a top-down way of assessing risk, ERM is a process that’s initiated and run by top-tier management.
Various risk management standards have been developed to help with ERM, ensuring the process is effective and standardised. Some are optional, however, adherence to some standards is compulsory by certain regulators.
Some of the most commonly used ERM standards include:
OCEG Red Book 2.0 (2009) for governance and risk compliance capability
IRM/Alarm/AIRMIC Risk Management Standard (2002)
ISO 31000 (2018) for risk management guidance
COSO (2004/2017) Integrated ERM Framework
Traditional methods for risk management
Traditional risk management methods usually involve unit or area managers taking responsibility for risks that may occur in their department. For example, the HR director establishing possible risks relating to staffing and personnel, and taking steps to prevent them and limit their impact on the business.
This method is often called “silo” risk management, as each leader is solely responsible for their own “silo” alone, for example, supply chain risk management, or personnel risk management.
Whilst it can be positive to have experts assessing the risks in their own area, this approach comes with several issues:
Not all risks fit into one box
Some risks may be intersectional, and by only addressing risks within your niche, you may overlook larger and more general risks that aren’t covered by a particular person. Often these risks can be substantial and significantly impact the business.
Some risks affect multiple areas
Whilst a risk may seem to fit clearly into one area, some risks will impact different areas of the business differently.
If a risk is identified as affecting one “silo” and dealt with accordingly, the impact it can have on other “silos” can be hugely underestimated. This is commonly due to specialists only having insight into their own area, and being unable to anticipate the effect it could have elsewhere.
Dealing with risks can have unforeseen consequences
A risk has been identified in one “silo”, and the manager has put a risk mitigation plan into action. However, the staff member has likely only considered the impact the changes will have on their “silo”, not the consequences that will occur across the whole business.
For example, switching to a new distribution software may deal with the initial distribution-based risk that was identified, but the software may no longer include accounting tools that were necessary for the financial department to operate effectively.
With each staff member focusing on the risks associated with their company “silo”, it can be easy to miss risks being posed by external factors.
Why is enterprise risk management better?
ERM involves standardising the tools and methods of risk management to ensure a positive outcome that can be repeated throughout a businesses lifetime. As a reactive and evolving process, it allows risk identification and response continuously to help ensure no aspects are missed.
An elevated perspective allows assessment of the entire organisation, as well as the relationships with external elements. Placing the responsibility with board members allows quick action on any risks identified, as senior input is already present.
Taking the responsibility away from “silo” managers is a more efficient use of resources; these staff are then free to focus on day-to-day management. Risk responses are carried out in a way that reduces repetition across different areas, using the fewest resources necessary to make a big impact.
What is enterprise risk management software (ERM software)?
Enterprise risk management software is a risk management solution with all the tools you need to actively manage risk across your organisation.
Some of the benefits of using risk management software include:
Improved compliance with industry standards
Faster decision-making processes
Evidence-based decision making that’s easily traceable
Improved risk visibility
Cost and time savings
ERM software development has helped to allow risk register generation; a method of risk calculation and documentation that is useful for risk management and resource planning. But this is just one of the many resource planning systems that are available.
Enterprise resource planning software (ERP software) is an option that is included in some ERM software to help managers utilise their resources efficiently. That could be when identifying risk, responding to perceived risk, or more generally throughout the business. Real-time risk assessment modelling can be a useful feature for analysing and evaluating risk patterns. Some tools allow heat map generation for areas of risk or can auto-generate risk charts to help target future decisions.
If your risks haven’t been adequately addressed and an incident occurs, an incident management system can be included to help evaluate your business processes. It can also assess the effectiveness of your current risk management solutions and ensure the same mistake isn’t repeated.
Compliance management software helps your organisation remain compliant with all risk standards that are relevant to your area, preventing fines and ensuring your risk management tools are of high quality.
How to choose an ERM software development company
With so many ERM software development companies to choose from, and even larger numbers of enterprise risk management software options, choosing the right one can be tricky.
When considering off-the-shelf software options, there are some important features to look for:
Unnecessarily complicated software isn’t going to help make your risk management process easier. Consider trialling the software before use to see if it’s user-focused and tasks are simple to carry out.
Risk continues to change, so the software you decide to use needs to help you stay on top of this. An excellent storage capacity, with risk updates and response ratings, can make your life easier.
Any risk management software you opt for must integrate seamlessly with your pre-existing enterprise resource systems to keep workflow smooth.
When you’re assessing your whole organisation from top to bottom, there will inevitably be sensitive data involved. Make sure to choose an ERM software development company that prioritises safety and security, or you could regret it later.
Project management relies on excellent communication, so a software option that allows open communication for all involved parties at all levels of the business is important. An inclusive communication platform can help ensure project success.
With a pre-existing software product, it’s not always possible to get every feature included that your company is looking for, and certain products will provide additional tools that you just don’t need.
However, off-the-shelf ERM software is ready to go from the point of purchase and requires no development time before use. There are usually monthly payment options, making it affordable, and some companies even offer a free trial so you can see if the product is a good fit for your organisation.
Custom ERM software development
If you are looking for a product that ticks every one of your boxes, without additional unnecessary features that complicate the risk management process for your staff, then a custom solution could be the answer.
Custom ERM software is created by a software development company to your specifications, allowing you to have input at all stages of creation whilst benefiting from their industry knowledge.
With off-the-shelf software, the seller retains licensing rights to the product, meaning you must pay a monthly licensing fee for as long as you need access to the software. Data is stored on external servers or cloud-based systems that the software company is responsible for.
However, with custom software, you are paying to own the product outright, with no ongoing fees. Whilst the upfront initial costs of custom software can seem off-putting, with no monthly payments it can save you money in the long run.
Laracle can help you with custom ERM software development
Laracle is a software development company that provides bespoke software products tailored to each client’s individual needs. None of our products are reused or recycled, resulting in a totally unique product that represents your company values.
As the leading software development company in the UK, and with over a decade of experience, you can trust we will deliver a quality and original software product.
To hear more about what we can offer your organisation, contact us today.