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Michael Saltzstein on Uniting Risk Management with Strategic Planning

Michael Saltzstein believes the ever-changing and ever-expanding needs of a business necessitate a thorough rethinking of the risk management process. A recent update to the COSO's enterprise risk management (ERM) framework offers new ideas on how companies can preserve their business's value, if not enhance it, by incorporating and examining risks from the strategy formulation stage.

 

This approach elevates ERM from an operational- and compliance-focused information-gathering and reporting model to a strategy-focused model that can add value to organizations. However, implementing the change is a challenge in and of itself, as organizations, particularly larger ones, are hesitant to redefine their existing ERM process without a precise cost/benefit analysis that demonstrates added value.

 

As Michael Saltzstein indicates, it’s important to address how risk management professionals can persuade decision-makers to incorporate risk management insights identified through the organization's ERM process into strategic planning.

 

Many would agree that adopting more sophisticated ERM systems improves corporate governance. In addition, there is a direct correlation between the maturity of the ERM system and the robustness of the entity's oversight and management.

 

Maintaining the status quo—that is, not connecting ERM with strategy and performance and not changing any business processes accordingly—may result in a critical failure that proves too costly for any company to bear, even in the most remote of scenarios. There are numerous examples of strategic corporate crises brought on by emerging risks that disrupted the organization's core business model. In other cases, unexpected low-probability but catastrophic events—"black swans"—have proven fatal to businesses when they do occur.

 

According to research conducted as part of the Association of International Certified Professional Accountants and North Carolina State University's Enterprise Risk Management Initiative for the 2017 Global Risk Oversight Report, companies find integrating risk into a strategy challenging. Fewer than 20% of organizations surveyed for the report in Europe, the United Kingdom, and the United States believe their risk management processes provide a distinct competitive advantage. In addition, only about half of global respondents agreed with the statement, "Companies must consider risk exposures when evaluating new strategic initiatives." The research concludes a global disconnect between enterprise risk oversight and strategy execution.

 

 

 

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