Finance

Enterprise Risk Management (ERM)

Enterprise Risk Management (ERM)

It is rightly said, “opportunities and risk come in pairs”. There is a bigger opportunity waiting behind every risk an organization takes. Risk is an important element for any organization which is always taken into consideration. Now comes the question of how to manage the risk. Enterprise risk management is one of the methods to do so. It refers to the process of planning, organizing, leading, and controlling the activities of the organization in order to minimize the effects of risk on the capital and earnings of the organization. This type of risk management not only allows the organization to know about the plan of action but also the stakeholders, shareholders, and potential investors in the annual report.

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ERM

Importance of Enterprise Risk Management (ERM):

  • The organization needs to identify the risk that they are capable of taking, maybe big or small. With the help of ERM, the risks can be planned and assessed.
  • Organizations often want to explore new business opportunities but if they should take it or not, remains a big question in their head. ERM helps them with analyzing the risk.
  • The use of efficient ERM techniques also results in the success of the organization.

Benefits of Enterprise Risk Management (ERM):

  •  ERM allows the higher-level authorities of an organization to come together and discuss all the types of risks rather than doing it individually which is more time-consuming.
  • It allows to detect a risk earlier as a warning sign and hence come up with suitable solutions.
  • The operation cost is low so it reduces the delay compared to the traditional method.
  • Those organizations which have an efficient and technical ERM system tend to easily raise finances from the market.
  • ERM will allow companies to take lower insurance premiums since it will cover certain risks.

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Final Thoughts:

Although Enterprise Risk Management is a way to minimize risk, the organizations should be prepared to deal with risks that come their way due to unforeseen situations. Risk is a part and parcel for every organization.

 

Author -Sanjana Rau

About the author- Started my journey of self even when the odds were against me, keen observation, a cool temper, and sports worked the best for me.

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