Aligning Risk with ERM
The complexity of Enterprise Risk Management (ERM) is a growing challenge and an equally lucrative opportunity for organizations. We're seeing this trend due to rapid changes the ecosystem of businesses and their ability to manage wealth/funds. ICICI Lombard recently published its research "Readiness of India Inc.". It throws up immersive insights for companies to reflect and change the way they look at risk, return and wealth management. An online research by interviewing 130 C-Suite risk officers and identified the way Indian organizations deal with organizational wealth, risks and investor interests associated with it.
Some of the key highlights of the report:
● 81% have appointed board level subcommittee for risk management
● 3 out of 4 organizations have risk governance mechanism in place for more than three years
● 29% deploy advanced analytical tools for impact assessment
● 36% do not perform risk culture diagnostics
● 35% continue to use spreadsheets for risk management
● 11% do not use technological platforms for risk management
● 81% believe that ERM helps protect corporate reputation
Wealth management is more about engaging with wealth in meaningful ways to realize its true value/return. The research material explains how ERM as a mechanism can combine culture, practices and capabilities with strategy and execution to manage risks and create more value out of it. The typical risk areas would include regulatory compliance (53%), operational concerns, geopolitical uncertainty. I also believe that uncertain economic growth also brings with it increased risks. Interestingly, 23% of the respondents saw information insecurity as a key risk along with technological disruption. It's important to note here that the responses are reflective of direct risk exposures that their respective companies are exposed to. ERM implementation would bring in more accurate results as it considers the implementation of company practices, strategy and cultural aspects to reflect real terms and numbers. Hence, business decisions would also become key drivers of ERM implementation. The research report did reflect this fact as applicable with 88% of organizations.
ERM creates a supportive fabric not just for organizations but also for investors. 76% of the respondents to the research survey expressed that ERM framework helps boost investor confidence. I think organizations looking forward to ERM implementation would require maturity at multiple levels to devise an accurate and responsive ERM strategy. Combining critical yet influential factors of organizational functioning and performance can bring to the fore the keys to an efficient ERM plan. For e.g merging control and compliance with strategic business decisions. The survey brings to light the lack of risk compliance governance (RCG) within Indian companies. 73% of organizations are equipped with RCG for more than 3 years while only 7% of organizations introduced it in last year. I believe we need to see more of this and at an accelerated pace.
the survey, it was revealed that most organizations (98%) adopted designed and documented structure for risk governance. This would include appointing board-level sub committees, redoing their risk analysis strategies and imbibing a renewed/updated approach to risk management in times when disruptions are increasingly becoming common across industries due to Artificial Intelligence (AI), Augmented Reality Biometrics (AR), Internet-of-Things and Predictive Analysis.
To come up with an effective ERM plan, the organizations need to assess the amount and type of risks the organizations are willing to take in line with their strategic decisions. Well defined KRI's or Key Risk Indicators was seen among 72% of organizations according to the survey and 41% of respondents claim to have them perfectly integrated, linked and prioritized. Hence, risk as a factor is an integral ingredient that should be aligned mindfully with the ERM framework.