What is Enterprise Risk Management (ERM)?

Risk is an essential part of operating any business. There’s no business today that’s completely risk proof. No matter what kind of business you’re operating, what types of products you sell or services you offer—there is some risk involved in the day-to-day running of that business. Most of the biggest risks to your profit potential are the ones you don’t even recognize for what they are. That’s why it’s so important to consider serious Enterprise Risk Management (ERM) procedures for your business as quickly as possible.

What is Enterprise Risk Management?

A big sounding name like Enterprise Risk Management might sound like something a little too sophisticated for the way you run your small business. It would be a serious mistake to think that way however. ERM is a two part process that is essential for any business that hopes to remain profitable and competitive in today’s business market.

The first step of the process is simple. You must identify and categorize the risks that have the ability to impact your business. The logic behind this first step is straightforward; you can’t mitigate the risks for your business if you haven’t figured out what they are.

The second step is to create an actionable plan for lowering the risks while also protecting and generating a healthy profit margin. In other words, it’s necessary to come up with a plan of action (and take that action) that’s designed to minimize the potential damage the risks can do for your business, while providing as high as possible of a return on investment for yourself, your business partners, or any investors your business may have.

How does ERM Help Your Business?

Whether you operate lone small business, own a few franchise stores, or run a huge corporation with stockholders around the world, you’re still responsible to reduce the risks your business faces as much as possible while protecting the profits it has the potential to earn. The best method for doing this isn’t always immediately obvious. There’s no simple process that works wonders for every business, every time. But, understanding where your biggest areas of risk may be help you to come up with a plan to limit those risks.

Here are just a few things that businesses of all sizes can do in order to help manage their risks:

  • Learn how to establish realistic goals for your business and create policies that promote those goals.
  • Define measurable parameters for successes and failures of business goals.
  • Develop meaningful consequences and rewards for those successes and failures.

Despite your best efforts, however, to mitigate or limit the risks your company is exposed to, there are still risks in doing business today. Not all those risks can be anticipated, measured, or even quantified. It’s in your best interest to prepare for the unexpected. One way to do this is by investing in business insurance. While it isn’t a cure for all that ails any particular business it is an important part of an effective Enterprise Risk Management (ERM) policy that shouldn’t be overlooked or neglected.