How else can you successfully drive value?
It is helpful to have an infrastructure on which to build value creation strategies to drive the process, and Enterprise Risk Management (ERM) plays an important role in this initiative. There are several steps to successfully drive value. First, evaluate how risk is currently managed throughout the organization and assess overall effectiveness. Next, determine the organization’s ERM maturity target state and note that the optimal state for the organization might not be the advanced state. Then develop a practical strategy that leverages strengths, closes gaps and builds a sustainable ERM program.
After that, develop a well-defined corporate risk profile and quantify the potential impact of key risks on financial performance. Finally, embed risk information into management decision processes.
What characteristics make ERM successful in driving value?
- Board and senior management commitment
- Alignment with corporate strategy and corporate culture
- Appropriate flow of risk information and communication
- Integration with management decision-making, for example, strategic planning
- A dedicated risk executive
- Understanding of risk tolerance
- Qualitative and quantitative analysis
- Proactive scanning for emerging risks
- Risk management that includes seeking opportunities, as well as mitigating and avoiding risk
How can you successfully link to CEO and CFO value creation?
- Assess the organization’s CEO, CFO and board dynamics.
- Review both sets of CEO and CFO value creation strategies with an eye toward how they apply to the organization’s CEO, CFO and finance team.
- Identify where current risk management strategies and activities align and support the organization’s value creation strategies.
- Identify additional risk management strategies and activities that may further support value creation.
- Measure value creation results wherever possible.
- Remember that value preservation is still important.
Value creation is one of the most significant issues that risk managers will be addressing during the next year. Organizations are looking to grow but realize growth cannot happen simply for its own sake. Growth must be profitable and sustainable, and choices that are made about how to achieve it must be evaluated from a risk-adjusted performance perspective. The door is open for risk managers to step forward, and the ones who are prepared to do so will reap the benefits.
William E. Hughes is senior vice president of Aon Risk Services. Reach him at (317) 237-2413 or [email protected].