In industries today, managing risk is very complex and there are many obstacles to contend with, in order for organizations to achieve their business objectives. The following challenges may have to be encountered and dealt with in an efficient manner to mitigate risks and reduce possible future financial losses.
- Involvement and Co-Operation
Effective risk management involves committed involvement from all resources within an organization. Implementing an efficient ERM strategy can be tiresome and cumbersome. Risks have to be assessed at all levels within a company and closely monitored.
- Integration and Alignment
Implementation of the risk management strategy should be aligned with the operations of the business. Stakeholder and management co-operation is essential for building a successful strategy. Consistency in operations should be maintained at all times to avoid duplication of processes which results in increasing costs.
- Change and adaptation
Implementing and planning new risk management strategies involves change in people’s thinking and behavior. There is a need to re-align attitudes and work mindsets, and adaptation to being part of new policies and programs. A risk culture mentality needs to be adopted across all levels of the organization.
- Commitment and skilled leadership
Commitment from top management is essential and a buy-in should be ensured from senior management. There needs to be a strong emphasis on risk management from leaders within the organization.
- Collection of data
Insightful and relevant data needs to be sourced from resources and other platforms within the organization. If key risk data cannot be adequately captured, the entire exercise of implementing a well-defined risk management strategy may be fruitless and go in vain. Surveys and questionnaires need to be frequently carried out within the organization to source data and gain insight. Lack of these exercises will result in poor decision making.
- Ownership and role definition
A common issue while initiating ERM strategies is in the selection or identification of a project champion. Disputes often arise at senior management and board level as to who will own or champion this undertaking. Choosing an individual and a team to support him or her is often a challenging process, especially if roles are not clearly defined. Absence of a senior ranking risk officer in the organization always triggers confusion.
- Controlling and monitoring
Effective controls need to be established and adherence to policies and procedures need to be strictly followed. Areas of higher risk need enhanced controls. This is often found to be a bottleneck in implementing effective risk strategy programs as management of operational risk is particularly difficult. Monitoring activities that need to be employed on a continuous basis and poor monitoring procedures often require remedial and corrective actions leading to increased costs.
- Effective communication and training
Communication and training are critical components of a successful ERM implementation. Existing resources and new employees need to be well networked and linked into the risk management program. Training schedules have to be continuously put into place and run so that employees are updated on new initiatives and are aware of their roles and responsibilities in the overall risk management strategy. Ineffective communication to employees will not foster a collaborative approach with the risk management team.