Global Enterprise Risk Management

By M. Isi Eromosele

All organizations are in the business trying to make profit by placing capital at risk in building global ventures. They are all in pursuit of strategic goals and they allocate valuable resources in trying to achieve them. Because these organizations face a certain level of uncertainty in achieving their respective goals, they all face risk.

Enterprise Risk Management is about optimizing internal processes to mitigate the possibility of catastrophic losses as a result risk occurrence. Leverage does not only magnify market risk. As margins for error contract, other risks increase, including credit risk, liquidity risk, operations risk and legal risk. Organizations need to focus on all these. Through enterprise risk management, they should seek comprehensive solutions, not because the problem is new, but because the consequences of failure can be enormous.

Organizations should embrace enterprise risk management because it makes good business sense. Among other actions, they need to change the way they take risks. They need to implement new innovative procedures. They should install new technologies. They should actively realign their corporate culture to facilitate better risk taking.

There are three fundamental components that comprise any risk management strategy:

• Corporate culture
• Procedures
• Technology

Corporate Culture

An organization will manage risk only if its staff wants to manage risk. While regulators can mandate a bank to install a value at risk system and require an insurance company to implement hundred of pages of new procedures, they cannot realistically force these institutions to effectively manage the systems. It is individuals who decide whether or not they are going to manage organizational risk.

While individual initiative is crucial, it is the corporate culture which facilitates the process. Corporate culture defines what behaviors the members of an organization will condone and which they will ignore. Corporate culture plays a critical role in risk management because it defines the risk which an individual must personally take if they are going to help managing organizational risks.

Procedures

The purpose of procedures is to empower people. They specify how people can achieve what needs to be done. The success of procedures depends critically upon a positive risk culture. Hundreds of pages of procedures are useless if no one use them. Even a simple set of procedures can make a great difference for an organization if people believe in them and take personal responsibility for upholding them.

Procedures make a system out of the process of risk management. Consider market risk management. They are a form of procedure which regulates oversight of trading risk. They are explicit in stating how much risk is to much risk for any given segment of a portfolio. Every organization should supplement regulatory procedures with their own procedures that embrace a process of risk optimization.

Technology

For many organizations, such as banks, investment management firms or insurance companies, technology is a critical component of any risk management initiative. Technology can impact how people work and interact with one another. Technology can reshape corporate cultures and facilitate innovative procedures. The major area where technology comes to the fore in risk management is in data aggregation, where information flow is controlled.

Today, technology makes it possible to effectively communicate information  across desks, departments and globally in real time. This technology solution is data aggregation.

Risk management oversees and ensures the integrity of the process with which business risks are taken. To maintain objectivity, risk management cannot be a part of the risk taking process. Enterprise risk management should be viewed as an ongoing process which needs continual oversight, planning and modification as needs evolve.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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