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Business - The Basics of Enterprise Risk Management
| Title : "The Basics of Enterprise Risk Management".Business,Research,Small Business An online dictionary defines a business as an occupation, profession, or trade, the purchase and sale of goods in an attempt to make a profit; a person, partnership, or corporation engaged in commerce, manufacturing, or a service; and a profit-seeking enterprise or concern. So with these definitions in mind, how does a business grow, expand, and succeed? One answer is: through new risks and opportunities. Businesses are always looking for new opportunities, and they have some processes and methods which are used to manage these opportunities (or also called risks) that pertain to their business objectives and goals. This is known as enterprise risk management (ERM). Through this process, businesses evaluate each risk/opportunity to estimate what the impact will be on their company. By doing this, they create value for their shareholders, employees, management, and sometimes society as a whole. There are three main portions of the enterprise risk management system: strategic planning, operations management, and internal control. Let’s take a more in-depth look at each one of these. Strategic Planning: This is when a business takes a formal look, consideration, and approach to map the future of their organization. In other words, strategic planning is the act of a business planning their strategy for success and all the steps along that road; it’s their vision for the company. Within the strategic planning category, there are two common analysis techniques used. The first one is SWOT analysis. This stands for strengths, weaknesses, opportunities, and threats. The second one is PEST analysis, which stands for political, economic, social, and technological. In order for any business to know where they are headed, they must first realize where they stand. This is an important part of their strategic planning. Operations Management: This deals with the concern for efficient, effective, and quality of all goods and services rendered by the company as well as products and services which are shipped out. The Association for Operations Management (APICS) defines it as "the field of study that focuses on the effective planning, scheduling, use, and control of a manufacturing or service organization through the study of concepts from design engineering, industrial engineering, management information systems, quality management, production management, inventory management, accounting, and other functions as they affect the organization”. Internal Control: This is a process designed by the IT systems that help the business, company, or corporations effectively and efficiently meet their goals and objectives. During this, the company’s resources are measured, monitored, and directed. At the organizational level, internal control relates the reliability of compliance with laws and regulations, financial reporting, and timely feedback regarding their company goals and objectives. Within the boundaries of ERM are these four strategies: 1.Avoidance of those practices that have an increasing risk. 2.Reducing the impact of those risks. 3.Sharing a portion of the risk in order to reduce the impact. 4.Accept the outcome. It is crucial for any successful business to look at the available and current risks and opportunities that can and will affect their company. |
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