What is ERM (Enterprise Risk Management)?

What is ERM Enterprise Risk Management

Enterprise Risk Management is the term for holistic, enterprise-wide risk management. In contrast to traditional approaches to risk management, ERM does not consider individual risks in isolation, but at the level of the company as a whole, taking into account their mutual interactions. The corresponding security processes to achieve the business objectives are part of Enterprise Risk Management.

What is ERM (Enterprise Risk Management)?

The acronym for enterprise risk management is ERM. It is a conceptual approach to holistic, enterprise-wide risk management. ERM has evolved from traditional enterprise risk management and offers an enhanced approach.

In contrast to traditional risk management, risks are not considered in isolation in relation to business processes, corporate divisions, and risk types, but at the level of the company as a whole. The dependencies and interactions between the individual risks are taken into account.

At the heart of enterprise risk management is the goal of minimizing any damage to companies in order to achieve business objectives in the best possible way. Risk management is centralized and focuses not only on risks but also on opportunities. Security processes needed to achieve business goals are also part of Enterprise Risk Management.

A well-known and globally established framework of enterprise risk management was published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2004, and has been revised and updated several times since then.

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Motivation for Enterprise Risk Management

Numerous risks jeopardize the achievement of a company’s business objectives. Risks can cause damage to the company itself, to employees, customers, partners, financiers, and society in general. The aim of risk management is to minimize such damage. However, in the past, traditional risk management approaches viewed individual risks in isolation in terms of business processes, business units, and risk types.

Interactions and dependencies between individual risks were hardly taken into account. Enterprise risk management aims to eliminate this shortcoming by providing a holistic, enterprise-wide approach to managing risks. Risks are to be managed strategically in such a way that corporate goals are achieved. Risk management functions are integrated into the business organization and enterprise processes.

Concept, features, and technical solutions

Enterprise risk management focuses on identifying, assessing, managing, and controlling a company’s significant risks. Risks are always assessed in relation to the achievement of business objectives.

Characteristics of ERM are the centralization of risk management and the procedural handling of risk control and management. Permanent processes are established which must be supported by all employees and managers. Risk management takes place across the organization at all levels of the various divisions.

In many companies, the framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) serves as a framework. Technical solutions for enterprise risk management are provided as software products and often integrate cloud technologies.

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Advanced ERM products use artificial intelligence (AI) and machine learning (ML) methods and techniques. AI and ML support the creation of risk models and the simulation of risk scenarios.