Looking Back to Navigate Forward

Today's post marks a significant milestone for The ERM Current™.  This is the 200th post to the blog since it was launched a year ago.  As we all know, the past year has been a remarkable one for the global economy and the practice of risk management.  Given the milestone, it is certainly appropriate to look back to evaluate the role of Enterprise Risk Management ("ERM") in the financial crisis that erupted at the same time this blog was launched.  In today's issue of Business Insurance Magazine, the following assessment of ERM was made.

Some observers have questioned whether enterprise risk management was to blame for the financial crisis, as the industry where ERM is most widely practiced is financial services. Others say ERM was not the problem; the real culprit was companies' failure to use ERM.

I agree with the latter view. Enterprise risk management makes both theoretical and practical sense, but what many people misunderstand is that there is no one-size-fits-all approach to managing risks, be they hazard risks or business risks.

Traditional risk management is concerned with hazard risk—that is, the effects of accidental loss. ERM encompasses hazard risk as well as business risk, which holds the possibility of loss, no loss or gain. ERM also is about maximizing organizational value, which requires viewing risk as both possibility of loss and opportunity.

One of the lessons from the financial crisis is that companies must take a strategic view of risk and manage it so that they can avoid disaster and position themselves to create opportunities, or at least take advantage of ones that arise.

This is a spot-on assessment that many companies and risk professionals should take to heart.  As we emerge from the crisis, some may become too focused on the hazard risks and miss out on exceptional business opportunities.  On the flip side, others may be emboldened by the fact that they survived the crisis and ignore potential risks.  A comprehensive ERM program is crucial to navigate through the myriad of risks successfully. Wheelhouse Advisors can help. Visit www.WheelhouseAdvisors.com to learn more.