For most organizations, ERM achieves that goal by accomplishing the following. The reasons organizations undertake ERM are both external and internal. On this last point, we have done empirical research on the value that investors assign to organizations that display consistent earnings results. The research results show that, across a wide range of industries, investors assign materially higher value to those companies with lower earnings volatility than their peers, even after the study sample is stratified to adjust for other value drivers, such as growth and return. The actual ERM process consists of the following four steps that usually make use of existing company information and procedures.
Risk assessment focuses on risk as a threat as well as an opportunity.
The nature of risk, the environment in which it operates, and the organization itself change with time. That situation requires continual monitoring and course corrections. Each of the substeps within these four steps could be the subject of its own article, if not an entire textbook. For purposes of this introductory article, we'll stop here. The Value of the Appropriate Framework Properly understood, designed, and executed, ERM can be the effective decision-making framework that executives say they are looking for.