Enterprise Risk Management: what is it?

Businesses have always faced a wide range of risk, but many have traditionally addressed them in a fragmented, department-by-department manner. As a result, inconsistent risk management can divert resources from core operations and could result in certain risks being missed entirely. 

In contrast, enterprise risk management represents a strategic, integrated approach that enables organisations to identify, evaluate, and manage risks in a structured manner. A well‑designed ERM framework ensures that all risk categories – strategic, operational, financial, and compliance‑related – are addressed in a coherent and consistent way. 

Enterprise Risk Management: definition and meaning

ERM can be defined as the process used by organisations to manage risks and seize opportunities related to the achievement of their objectives. It provides a structured framework for managing risk, typically involving the identification of events or circumstances that may affect the organisation’s objectives (both risks and opportunities), assessing their likelihood and potential impact, selecting an appropriate response strategy, and monitoring progress over time. 

In recent years, the increasing frequency and severity of cyberattacks and the lasting impact of the COVID pandemic have underlined the shortcomings of traditional, fragmented risk assessment methods. As a result, ERM has become a crucial aspect of organisational governance and should be considered an ongoing process that requires continuous improvement and adaptation to new risks and opportunities. 

Steps and components of Enterprise Risk Management

Enterprise Risk Management should not operate as an isolated activity but should instead be aligned with and embedded into all organisational processes and decision-making. Most management system standards – ISO 9001 (quality), ISO/IEC 27001 (information security), ISO 14001 (environmental), among others used to enhance products, services, reputation, and overall performance – include requirements for identifying and managing relevant risks through the management system itself. Organisations seeking more comprehensive guidance on risk principles and practices can refer to the  ISO 31000 risk management standard.

In today’s business landscape, companies are increasingly required to demonstrate compliance with established standards to meet the expectations of not only customers but also internal and external stakeholders. As a result, it has become necessary to effectively manage enterprise risks and verify this through independent third-party certifications.  

The risk management process can be broken down into several key steps: 

• Risk Identification: This is the process of detecting and describing risks that could potentially affect the business. This process is about recognising the potential risks that could impact an organisation's objectives.
• Risk Assessment: Once risks have been identified, the next step is to determine the likelihood and impact of these risks. This involves evaluating both the probability and consequences of each identified risk. 
• Risk Response (treatment): This step is about developing actions to enhance opportunities and reduce threats to operations. It involves formulating strategies to manage or mitigate the identified risks. 
• Control Activities: Implementing mechanisms to ensure risk responses are effectively carried out. This includes the policies and procedures that help ensure the risk responses are effectively implemented. 
• Information and Communication: Ensuring relevant risk information is identified, captured, and communicated in a timely manner across the organisation. This step is vital for informed decision-making across all levels of the business 
• Monitoring and Review: The final step involves continuously observing the risk management processes to ensure it is effective and making adjustments as necessary. This includes the ongoing review of the risk environment and the effectiveness of the response strategies. 

Enterprise Risk Management examples

The risks an organisation faces will differ based on its business activities, industry sector and even its geographic location. Common traditional risks shared across many companies include threats to the competitiveness of their products or services, as well as their ability to comply with health and safety regulatory requirements.  

Most organisations must balance the expectations of a wide range of stakeholders, and cybersecurity has become a critical risk for most, if not all, of them. Artificial intelligence is also appearing on virtually every corporate agenda in one form or another. Meanwhile, topics once considered peripheral, – such as diversity, equity and inclusion (DEI), are gaining prominence across many organisations. Taking a broader perspective, meeting environmental, social and governance (ESG) expectations, and demonstrating measurable performance have become significant priorities for investors and other stakeholders. By implementing a robust enterprise risk management strategy, organisations not only protect themselves from potential threats but also position themselves to take advantage of emerging opportunities 

Examples of an ERM in practice might include a technology firm implementing advanced cybersecurity measures to guard against data breaches, or a food producer committing to the use of sustainably sourced raw materials and introducing enhanced food‑safety controls across its production processes and supply chain to protect consumer health.  

ERM tools and solutions

A range of tools and solutions are available to support ERM, varying in complexity and depth. 

A management system that complies with certifiable standards from ISO or other recognised scheme owners can provide organisations with a structured and consistent approach to Enterprise Risk Management. Within the ISO framework, the ISO 31000 risk management standard is particularly valuable, alongside a range of supporting guides and manuals that offer practical methods for implementing ERM in alignment with specific industry requirements. 

Risk impact can be illustrated using a risk matrix, where the likelihood of an incident occurring is plotted on one axis and the severity of its impact on the other. Typically, risk levels progress from low in the lower‑left corner, through moderate and high, to very high in the upper‑right corner. 

Borrowing from the problem-solving aspect of quality management, the fishbone or Ishikawa diagram, is a tool used in Root Cause Analysis (RCA) to identify the underlying causes of a problem. Shaped like a fish skeleton, the problem sits at the “head”, while potential causes extend to the left as “bones”, grouped into major categories such as methods, machines, materials, people, measurements, and the environment. 

When applied to risk management, the fishbone diagram can help identify potential sources of risks that may affect a project or business. For example, in a software development project facing the risk of delays, the diagram can be used to explore and map out possible contributing factors. 

Each potential cause of delay can be assigned to a different “bone” of the fishbone diagram, with further branches added as needed. For example, one bone might relate to people, another to equipment, a third to organisational or supply‑chain processes, and another to regulatory requirements. 

The people branch could highlight issues such as the need for additional training or a shortage of suitable candidates. The equipment branch may point to requirements for new technology or risks associated with equipment failure. The processes bone might capture tasks such as developing manuals, securing funding approvals, or managing dependencies with other higher‑priority projects. Delays related to regulation may arise if relevant official guidelines have not yet been published or are still under review. 

Other ERM tools include software platforms that provide flexible modelling frameworks capable of assessing multiple asset types and managing enterprise risks.  

By effectively implementing ERM, organisations not only protect themselves from potential threats but also position themselves to take advantage of new opportunities. Organisations looking to strengthen their skills and knowledge can explore risk management courses to better implement ERM practices and frameworks.