Boots on the Street
Ahren Hohenwarter
Enterprise Risk Management Vs. Traditional Risk Management – The Same… But Different
Enterprise Risk Management (ERM) and Traditional Risk Management (TRM) share many similarities. Both ERM and TRM are methods of making, implementing, and monitoring decisions that minimize the adverse effects of risk on an organization and they both utilize the six steps of the Risk Management Process:
- Identify risk within your organization.
- Analyze those risks.
- Examine the feasibility of risk management techniques.
- Select the appropriate risk management techniques.
- Implement selected risk management techniques.
- Monitor the results of the program and revise accordingly.
Where ERM and TRM differ is in their scope. Traditionally, risk management has been associated with loss exposures related to hazard risk. This practice excludes from the scope of risk management all exposures related to business risk, instead focusing on managing safety, purchasing insurance, and controlling financial recovery from losses generated by hazard risk.
Enterprise Risk Management embraces a broader view of risk management that encompasses both hazard and business risk. ERM is a holistic approach to risk management in that it addresses all risks faced by an organization. This approach allows an organization to integrate all of its risk management activities so that the process occurs at the enterprise level, rather than at the departmental or business unit level. Because ERM is applied enterprise-wide, it supersedes departmental or functional autonomy that could impede risk management efforts.
Regardless of size, every organization has inherent risks whether they are hazard risks, operational risks, financial risks or strategic risks so risk management should be part of every business strategy. Developing an effective risk management program, ERM or TRM, can be a daunting task but a good place to start is asking yourself: What aspect of my business keeps me up at night?
For more information on developing Risk Management Strategies contact Enterprise Risk Management & Insurance Services.
Ahren Hohenwarter, CPCU
Director of Field Services
Phone: 209-550-3769
Ahren@enterpriseriskmgt.com