Project Return

Importance of Enterprise Risk Management (ERM)

July 13th , 2012

In many projects, risks are identified and analyzed in a random, brainstorming, fashion. This is often fatal to the success of the project, as unexpected risks arise, which have not been assessed or planned for and have to be dealt with on an emergency basis, rather than be prepared for and defended against in a planned, measured, manner. Very early in the preparation and planning stage, it is essential that potential risks are identified, categorized and evaluated. There are many factors that make risk management important.

Why Is Enterprise Risk Management (ERM) Important?

  1. Organizations start an endeavor to take a business opportunity. There is uncertainty about the organization will take the opportunity or not. So each endeavor has an associated risk. That is because ERM is important.
  2.  Organizations need to increase their risk taking capability to cash on the opportunities that keep knocking at their doors. With robust ERM, organizations can identify and analyze risks and decide which risk is worth taking.
  3. Projects can only control risks and opportunities directly within their remit. Yet, the performance of a project is very much dependent upon the obstacles thrown up by the enterprise or organization and other external influences, which are outside the projects control.
  4.  Enterprise Risk Management (ERM) is important because its success determines the health and life of the business enterprise. If an organization fails to identify risks to its existence, it will be ill prepared to face any risk events. As an example, business enterprises recognize that dependency on a sole source supplier is a high risk (if that supplier goes out of business your business will be impacted). Therefore, they identify that risk and address it by developing multiple sources so reducing that particular risk. In the same way that risk is managed in projects to increase its probability of success, risk must be managed in an enterprise to assure its success.
  5. ERM institutionalizes risk management procedures in the organization by standardizing the tools, methodology and people processes in monitoring individual project risks. This is important so that the impacts of individual project failures (in case failures do happen) are addressed appropriately.