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Adopting the enterprise risk management approach

In business, growth is a good thing because it holds the promise of increased profit margins. However, growth also means risk - and the faster the growth, the bigger the risk. Why?

In an article that appeared in Industry Week, Contributing Editor, Juan Hovey, points out that growth is not an unalloyed good. Growth forces change throughout the organisation, affecting every aspect of the business operation from production to marketing to distribution. In fact, rapid growth can force change so pervasive that it spins out of control, threatening the bottom line.

Clearly growth, in short, is a problem. One effective tool created to address this issue may be enterprise risk management, a process that uses advanced risk-management techniques that affect enterprise value. This process encompasses the major categories that are normally associated with corporate risks, including hazard risk, product reliability, financial and strategic risk.

In essence, enterprise risk management is as much a process as a result. It seeks to identify, assess, and control - sometimes through insurance, more often through other means, including the use of technology. Enterprise risk management involves five steps: identifying risk, measuring it, formulating strategies to limit it, carrying out specific tactics to implement those strategies, and continuously monitoring the effort. Simply put, this process seeks to anticipate trouble, not react to it. Already the enterprise risk management approach has found favour with top companies.

"Enterprise risk management means looking at the entire organisation as subject to risk and putting continuous procedures in place to identify, measure, and manage the risk," says Paul Van Zuiden, who heads the Great Lakes risk management practice for the consulting firm Deloitte & Touche, Chicago.

In the local context, there is certainly scope for companies to adopt the enterprise risk management approach, in particular in the retail industry sector. Currently, the picture does not look rosy with the industry's major players all reporting substantial losses in recent times. Insurance companies too are calling for some kind of creative risk-sharing approach from companies and are urging associations to move towards a more effective supply-chain management system. The pressure is mounting on the retail industry for a quick turnaround in income. As a result, risk managers are looking for new methods of identifying the critical risks that affect business.

Hi-Tech Security Solutions has always envisaged risk management to be an integral part of the complete security solution and is of the firm belief that technology has a role to play in helping risk managers maximise profits by optimising the balance between risk and return.

Till next month

Gerard Peter, Associate Editor

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