ENTERPRISE RISK MANAGEMENT
Enterprise Risk Management (ERM) is the corporate-wide application of risk management to improve the performance of an organization's business. Understanding risk and making informed decisions in response to uncertainty is fundamental when seeking to build a robust and deliverable business strategy.
ERM is more than crisis management or regulatory compliance. It is a tangible and structured approach to addressing organizational and financial risk. ERM, ultimately, works toward enhancing shareholder value and competitive advantage.
JSA can help
- Reduced governance risk - improved risk measurement and reporting can help boards and senior executives satisfy legal and fiduciary responsibilities.
- Increased risk awareness and improved reporting - with or without new fiduciary, legal and regulatory requirements, company stakeholders are likely to express higher confidence in companies that clearly articulate risk exposures and relevant mitigating capabilities.
- Risk mitigation savings - significant savings can result from centralizing processes and reducing nonessential hedging practices. Through ERM, companies are better positioned to independently evaluate risks and to adjust hedging activity and insurance coverage, commensurate with tangible risk measurement results.
- Operating savings - companies can achieve significant cost savings through ERM-driven activities - namely in the areas of risk, functional and staff consolidation and improved process efficiencies. Consolidation areas include corporate governance, business unit market and credit management, and insurance functions.
- Lower cost of capital - increased earnings stability and lower financial risk can translate into better bond ratings and lower short-term and long-term interest rates.
- Improved controls - through improved risk measurement data, companies are better equipped to identify high-risk processes and to allocate resources and controls accordingly. In many cases, companies improve controls without incremental costs as risk measurement results often highlight over-controlled risks based on lower than expected exposure results. Companies can also benefit as disparate and independent risk functions operate under common leadership and policies thereby reducing inconsistent practices and process "off-hand" risks.
- Improved capital efficiency - while difficult to measure, companies can gain shareholder value through improved risk awareness and risk-based external communications - ultimately driving improved investor perception regarding management's ability to identify critical business risks, mitigate unnecessary losses and protect shareholder capital