Enterprise Risk Management: Process & Framework Explained

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All projects are risky ventures and so is running an enterprise. Unexpected events, whether internal or external, can impact the schedule, budget and operations. Risk can have an even greater impact on larger, more complex projects or the organization that implements them, which is why enterprise risk management is so important.

An enterprise risk management framework can mean the difference between a successful or failed project. Enterprise risk management software is critical to delivering a successful project. But first, one must understand the risk management process and risk management strategy.

What Is Enterprise Risk Management?

Enterprise risk management (ERM) is a structured approach to identifying, assessing, managing and monitoring an organization’s risks to minimize potential negative impacts on its operations, strategy and financial performance. It involves a comprehensive, integrated process that aligns risk management efforts with the organization’s objectives and overall risk tolerance.

The benefits of a risk management framework include providing a comprehensive view of the organization’s risk landscape, which helps to make more informed decisions by understanding risk. This allows organizations to better align strategic initiatives and operational activities. Identifying risks before they turn into major issues avoids being unprepared and having to suddenly react to a crisis. It also helps organizations adhere to legal and regulatory requirements, which reduces the risk of penalties.

While this requires an enterprise risk management strategy and implementing an enterprise risk management process, which we’ll get to later, it’s also critical to have enterprise risk management software. ProjectManager is enterprise risk management software that has risk management tools that help identify, track and mitigate risks in real time. It includes a risk management matrix that shows the level of impact and the likelihood of occurrence to help determine what actions need to be taken. There’s also space to describe that action, assign team members to own the risk, add tags and files, plus team members can add comments. Get started with ProjectManager today for free.

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What Is an Enterprise Risk Management Framework?

We’ve mentioned an enterprise risk management framework previously, but what exactly is it? An ERM framework is a structured and systematic approach an organization uses to identify, assess, manage and monitor risks. It provides the foundation for implementing risk management practices across the organization. The framework ensures that risk management is integrated into an organization’s strategy, operations and decision-making process.

What Are the Elements of a Risk Management Framework?

An ERM framework is a critical tool for organizations to manage uncertainty, safeguard assets and enhance their ability to achieve strategic objectives while minimizing risk exposure. The following are key parts of a risk management framework.

Governance and Leadership

This involves a designated risk management leader, often called the chief risk officer, and a risk management committee responsible for overseeing the risk management efforts. Senior leadership, including the board of directors, plays a crucial role in ensuring that risk management practices align with the organizational objectives.

Enterprise Risk Tolerance

This refers to the organization’s boundaries for risk-taking in pursuit of its objectives, which is arrived at by balancing strategic ambition with prudent decision-making. It also defines how the culture promotes awareness and understanding of risk management at all levels. Employees should be encouraged to identify and report risks, fostering a proactive approach.

Enterprise Risk Management Plan

It outlines how an organization will identify, assess, manage and monitor risks over time. It is a strategic document that provides the roadmap for risk management activities, detailing the processes, roles, responsibilities and actions that will be taken to manage risk effectively. This is important because it ensures that efforts are consistent, structured and aligned with the organization’s strategic goals and objectives.

Enterprise Risk Management Budget

These are the financial resources allocated to support the risk management activities within the organization. This budget is used to implement and sustain the processes, tools, technologies and personnel required to identify, assess, manage and monitor risks across the enterprise. It ensures that sufficient resources are available to address risk proactively and effectively.

Communication Plan

Effective communication ensures that risk-related information is shared transparently and consistently across the organization, helping stakeholders understand the risks and the measures being taken to manage them. A communication plan facilitates decision-making, ensures accountability and promotes a risk-aware culture.

The Enterprise Risk Management Process

Organizations use this systematic, structured approach to identify, assess, manage and monitor risks that could affect their objectives and overall business performance. The process is designed to be integrated into the organization’s strategy and decision-making to help mitigate potential negative impacts while capitalizing on opportunities. It starts by understanding the external and internal environment and defining the risk appetite and tolerance of the organization. Then follow these steps.

1. Risk Identification

The organization identities both existing and emerging risks that could impact its ability to achieve objectives. This includes a broad range of risks, such as financial, operational, strategic, compliance, reputational and environmental risks. Risks can come from a variety of sources, such as market changes, technological disruptions, natural disasters, regulatory changes or internal operational inefficiencies. Identify these risks using brainstorming sessions, interviews, surveys, workshops, historical data or risk mapping.

2. Risk Analysis or Risk Assessment

After identifying the risks, the organization analyzes each to assess the likelihood of occurrence and its potential impact on the business. Based on this, risks are prioritized according to their potential impact and likelihood, using tools such as risk matrices, heat maps or scoring models. Then decide which risks need to be addressed immediately and which ones can be monitored.

3. Risk Planning

Once risks are assessed, appropriate plans are developed to address them. This can include avoidance to eliminate the risk, reducing the likelihood or impact of the risk, shifting the risk to a third party, acceptance of the risk and its consequences or exploiting the opportunity inherent in the (positive) risk. The risk plan will then schedule activities and assign resources to execute those tasks.

4. Risk Monitoring

Risks and the effectiveness of risk mitigation strategies need to be monitored continuously. This ensures that any changes in the organization’s risk environment are detected early and risk responses are adjusted accordingly. Organizations often use key risk indicators to track risks over time and gauge whether they are approaching unacceptable levels. Regular audits and reviews of risk management processes help ensure compliance with policies and regulations as well as evaluate the effectiveness of implementing risk mitigation strategies. Adjustments should be made as needed.

5. Risk Mitigation

This refers to the actions or strategies taken to reduce the likelihood or impact of identified risk. The goal of risk mitigation is to minimize the potential adverse effects of risks on the organization’s objectives and operations. This is the stage in the enterprise risk management process in which decisions are made on how to address risks, such as whether to avoid, reduce, transfer or accept the risk.

There are various approaches to risk mitigation, from taking preventive measures, using risk reduction to reduce the likelihood of a risk occurring or lessen its impact to having a contingency plan, diversification to spread the risk across different areas or product or purchasing insurance to transfer certain types of risk, such as property damage, liability or business interruptions, to third-party insurers.

6. Communication and Reporting

Communication and reporting ensure that all stakeholders within and outside the organization are informed about the risks the organization faces, the measures being taken to manage those risks and the effectiveness of the risk management efforts. Clear and timely communication and reporting are essential for decision-making, accountability and maintaining a strong risk culture. Internal and external communication is done through workshops and training, regular meetings, dashboards and reports. Different types of risk reports include risk registers, dashboards and incident reports.

How ProjectManager Helps With Enterprise Project Management

We explained what enterprise risk management is, the enterprise risk management framework and process, but now comes the most important element to successfully managing risk: enterprise risk management software. ProjectManager is award-winning project and portfolio management software with risk management features to identify, assess, plan and mitigate risks in projects and organizations.

Multiple Enterprise Project Planning and Scheduling Tools

Risk plans need to be scheduled. Our software allows risk managers to do so on robust Gantt charts or roadmaps if they’re planning across multiple departments. Both organize tasks, add milestones and can link all four types of task dependencies to avoid delays and cost overruns. The critical path can be found by simply filtering for it. Then set a baseline to compare planned effort against actual effort in real time to stay on track. Teams can then execute their tasks on kanban boards or task lists while stakeholders can stay updated on progress with the calendar view.

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Robust Resource Management Features and Tools

To ensure that risk mitigation is going as planned, managers need to oversee resources. This begins when onboarding the risk team. Managers can set their availability, such as PTO, vacation and global holidays and skills, which helps when making assignments. Then the color-coded workload page gives an overview of their allocation so managers can see who is overallocated or underutilized, balancing the team’s workload to keep them working at capacity and avoiding burnout. There’s also a team page to get an overview of resources. It can be filtered to show daily or weekly views as well as priority, progress and more.

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Cost Tracking Timesheets, Dashboards and Reports

Resources aren’t the only metric to monitor. Managers can get a high-level overview of the project’s key performance indicators (KPIs) on the real-time project and portfolio dashboards. They’re collecting live data automatically and displaying it on easy-to-read graphs and charts that display time, cost, workload and more. Customizable reports can be filtered to go into the weeds or summarize progress and share with stakeholders to keep them informed. Our secure timesheets streamline the payroll process and offer a window into how far team members are in completing their tasks and labor costs to help stay on budget.

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Related Risk Management Content

Risk management is larger than just the enterprise sector. For those interested in reading more about the topic, below are a handful of links to recent blog posts.

• How to Make a Risk Management Plan (Template Included)
• The Best Risk Management Tools & Techniques for PM Pros
• Risk Mitigation in Project Management
• What Is a Risk Register & How to Create One
• 9 Free Risk Management Templates for Excel

ProjectManager is online project and portfolio management software that connects teams whether they’re in the office, out in the field or anywhere in the world. They can share files, comment at the task level and stay updated with email and in-app notifications. Join teams at Avis, Nestle and Siemens who use our software to deliver successful projects. Get started with ProjectManager today for free.

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