The Path to ERM Success

The path to success in implementing an Enterprise Risk Management (”ERM”) program can be found in greater integration and better technology - that’s according to a recent survey presented at the 2011 Risk and Insurance Management Society (”RIMS”) Conference in Vancouver, British Columbia. Entitled “Excellence in Risk Management VIII”, this is an annual independent survey of executives conducted for RIMS by Marsh. The most common focus area noted in the survey is a desire to strengthen enterprise or strategic risk management approaches. While more than half of the survey respondents indicated this desire, a majority saw the primary barrier to achieving this goal was a lack of understanding of the risk landscape across numerous silos of information.

As a result, 55% of the respondents expect to integrate risk management deeper into and across operations and 54% of respondents expect to perform day-to-day risk management activities more efficiently. To meet these expectations, organizations will need to improve the way they gather and report risk data through more cost-effective technology. The survey report supports this notion through the following observation. “It’s worth noting to risk managers that their counterparts in the C-suite were the most likely to view technology upgrades as a focus area. This should help pave the way for technology that can ease the time spent on mundane tasks and open the door to developing the deeper integration of risk management with other departments.”

Source: Risk & Insurance Management Society, Excellence in Risk Management VIII

A Case for Strategic Risk Management

Yesterday, Federal Reserve Governor Randall S. Kroszner delivered a speech to the 2008 Annual Risk Management Association Conference in Baltimore, Maryland.  In his speech, Governor Kroszner made the case for strengthening risk management practices by integrating risk management with strategic planning.  Governor Kroszner stated,

"In my view, an effective overall corporate strategy combines a set of activities a firm plans to undertake with an adequate assessment of the risks included in those activities. Unfortunately, many firms have forgotten the second part of that definition. In other words, there can be no real strategic management in financial services without risk management, hence my use of the term "strategic risk management." Risk management needs to be interwoven into all aspects of the firm's business and should be part of the calculus for all decision-making. Strategic decisions about what activities to undertake should not be made unless senior management understands the risks involved; assessing potential returns without fully assessing the corresponding risks to the organization is incomplete, and potentially hazardous, strategic analysis."

While many institutions may have thought they were considering risks when setting strategy, most were blinded by the potential profits without a healthy consideration of the risks.  As Governor Kroszner reiterated in his remarks,

"...the ongoing fundamental transformation in financial services offers great potential opportunities for those institutions able to integrate strategy and risk management successfully, and I will argue that survival will hinge upon such an integration...."

Click here to read Governor Kroszner's full speech.