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Fundamentals of Enterprise Risk Management

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Fundamentals of Enterprise Risk Management

AMACOM,

15 min read
10 take-aways
Audio & text

What's inside?

Beyond insurance alone: why smart companies fully embrace enterprise risk management

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Editorial Rating

8

Qualities

  • Applicable

Recommendation

Fully managing enterprise risk means more than insuring against fire, floods and other hazards. Companies commonly have many uninsured exposures to loss from tougher competition, rapid technological change, financial instability and regulatory sanctions. That is why business leaders in growing numbers have adopted enterprise risk management (ERM), a flexible way to identify and respond to a corporation’s total range of risks. Not all risks are all bad. Some are worth taking. Firms that practice enterprise risk management can minimize their potential peril while taking their best calculated risks, the ones most likely to increase sales and profits. Enterprise risk management will not eliminate risk. It did not prevent the failures of major financial institutions during the 2008 crisis. But author John J. Hampton cogently upholds the practice, noting that a disciplined, detailed approach is critical to making ERM actually work. He favors a customizable model of risk management – including a central monitoring function – that can work for a company of any size. getAbstract recommends this book to business leaders seeking a more reliable way to identify each meaningful risk, to distinguish good risks from bad ones and to cover their downsides as much as possible.

Summary

Looking Beyond Insurance to Risk Management

Starting in the 1970s, companies expanded their risk management umbrella from insuring against hazards to launching internal loss-control initiatives, such as safety improvements at assembly plants to reduce workplace accidents. Some companies started to substitute the broader corporate title of risk manager for the older title of insurance manager. In subsequent years, business leaders have gradually put more attention on enterprise risk – not individual risks in isolation, but rather a company’s total, embedded exposure to uncertainty. By the late 1990s, some major corporations had started to conduct enterprise risk management (ERM) through regular reassessments of identified risks, routine scans for ill-defined threats and constant analysis of commercial possibilities that held more positive potential than negative.

Modern risk management covers mitigating the risk of physical hazards, complying with government regulations, and maintaining productive internal controls and audits. Even given these common ingredients, effective ERM systems come in a variety of different flavors. Therefore, the best way to manage enterprise...

About the Author

John J. Hampton is professor of business and director of graduate business programs at St. Peter’s College. He is a former executive director of the Risk and Insurance Management Society.

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