Risk Experts Advise on Enterprise Risk Management
Helping businesses envision, create, implement, and maintain effective programs
Nothing ventured, nothing gained. That maxim, which reminds us that all progress involves risk, is as old as business itself. Great successes have only been possible because people decided their vision was worth the risk. However, the business landscape is also littered with the ashes of failed companies whose leadership did not prudently assess and manage the risks they were facing. Some failed because they were reckless, others because they were too cautious. At North American Forensic Accounting PC, we believe that managing risk is an essential process for a successful organization. We provide tools, processes, and principles to help companies understand the risks from within and outside their organization and to plan appropriately. We can help your company build an effective system with reliable processes and controls. With a comprehensive and detailed plan for enterprise risk management, you can feel secure about the calculated risk your company is taking on.
What type of risk is your organization facing?
Businesses face many types of risk, some of which are defined as follows:
- Hazard risk — This type of risk involves harm that might come from negligence, malfeasance, or force majeure, such as liability lawsuits, property damage, natural disasters, crime, work-related injuries, and business interruption.
- Financial risk — This category pertains to possible jeopardy from fluctuations in the market that impact prices, availability of credit and capital, liquidity, and other factors.
- Operational risk — This type of risk covers failures of business processes and compliance, such as IT breaches, compliance failures, internal fraud, and breaches of fiduciary duty.
- Strategic risks — This category encompasses the risks that come from competing in a dynamic marketplace, such as choices related to innovation, brand development, customer behavior, demographic and cultural changes, regulatory changes, and political trends.
- Reputational risk — This risk category involves the risks impacting a company’s good name from three categories: Directly, due to actions of the company itself; Indirectly, due to actions of employees or officers; and tangentially, through other parties such as suppliers or strategic partners. This most commonly will come into play with ethical violations and attempts to conceal or misconstrue reality.
- Technology risk — This type of risk encompasses all manners in which technology could negatively impact your business, such as downtime and data loss from tripping over server power cords, software bugs, and even physical computer hardware failures.
- Cyber risk — This risk is related to technology risk and usually involves malicious actors taking advantage of cyber security flaws, this includes stolen data, ransomware, virus infections, and even the accidental leaking of critical data.
- Legal risk — This risk involves the damage that can be caused by failing to comply with statutory or regulatory obligations including but not limited to tax filings, tax law, employment law, environmental laws, and interstate commerce laws.
- Physical risk — This risk includes the potential dangers that are posed toward physical assets of the organization. This risk could even put your employees and other stakeholders in danger. This risk stems from physical dangers such as fires, floods, criminal violence, vandalism, theft and even robbery.
Navigating risk requires leadership to understand the elements in each of these categories. That understanding requires timely and reliable information on which leadership can base decisions.
Building an interrelated risk portfolio
NAFA’s risk experts help you inventory and assess the different categories of risk. We then help you construct a comprehensive plan for managing risk throughout your entire organization. With enterprise risk management, your organization will:
- Identify, assess, and prepare for any uncertainties that could negatively or positively influence the achievement of the organization’s objectives.
- Address the full spectrum of risks and manage the combined impact of those risks as an integrated portfolio.
- Identify key risk indicators
- Designate risk “owners”
- Define the organization’s appetite, capacity, and tolerance for risk in written statements
- Incorporate the company’s risk posture into the overall corporate culture
- Institute regular risk updates
- Develop reporting capabilities for workers at all levels
- Design metrics to assess the value of the ERM program
- Provide training throughout the organization to make prudent risk management a key facet of the corporate culture
At NAFA, we believe that culture is a powerful force contributing to the success or failure of an organization. We have helped numerous organizations develop ethics programs that are instrumental in boosting morale, productivity, loyalty, retention, compliance, and customer service, while discouraging deviant behaviors, such as fraud, sexual harassment, abuse of subordinates, slacking, and other types of negative, unprofessional conduct. ERM takes this same approach to culture and applies it to risk.
Perhaps the easiest way to envision enterprise risk management is as a continuous cycle of self-evaluation, recommitment, and improvement. This ongoing process requires an organization to:
- Know the risks related to business strategy and operations
- Decide how much of each type of risk the organization can undertake
- Create processes for overseeing risk
- Design methods of collecting data on risk
- Report on the status of the risk categories
- Use reported data to assess how well the company is managing risk categories
- Respond to this new information
- Stress test the results by contemplating scenarios where a variety of adverse events might occur
The stress test completes the cycle and brings us back to the beginning where we must adjust our knowledge of the risks we’re undertaking.
For many organizations, enterprise risk management may seem like an added commitment that would take resources from other areas. But before you decide that’s the case, ask yourself how much you have spent in recent months or years on damage control? How many losses have you sustained from liability, worksite accidents, lost inventory, security breaches, late fees, regulatory sanctions, and on and on? Minimizing future losses is a sound investment, and NAFA is ready to show you how.
Contact North American Forensic Accounting PC to learn more about ERM
North American Forensic Accounting PC helps companies develop and implement enterprise risk management programs. To learn more, call us at 347-286-4860 or contact one of our offices online to schedule an appointment. Headquartered in Harrisburg, PA, NAFA serves clients throughout the United States, including Philadelphia, Pittsburgh, New York City, Atlanta, Charlotte, Miami, and the Tampa Bay Area.