Every organization that wants to succeed must implement risk management strategies to anticipate risks and protect its profits and operations.
When it comes to identifying, assessing, and controlling risks in your business, there are two options available: integrated and enterprise risk management.
The secret to eliminating or managing risks is consistently implementing these risk management strategies.
An in-depth understanding of the overlaps and differences between integrated and enterprise risk management enables you to align your strategies purposefully and effectively.
What is integrated risk management?
Integrated risk management collects processes, practices, and business goals. They are built around foregrounding risks in a company’s technologies and systems.
In the modern businesses we have today, risk management is essential for responsive and successful business administration.
Unlike enterprise risk management, integrated risk management concentrates on inherent security vulnerabilities within an organization to help improve decision-making and risk visibility.
Small and mid-sized businesses mainly use an IRM approach, prioritizing a risk-aware culture resulting in cross-functionality visibility and regulatory compliance.
Integrated risk management components acknowledge that every business has a unique risk tolerance that allows a risk management strategy customized to your company.
A risk-driven approach to these practices offers companies more effective and informed decision-making when protecting critical enterprise systems and stakeholder information.
Integrated risk management mainly concerns loss exposures generated by specific hazard risks.
This strategy excludes all disclosures attributed to business risks and prioritizes buying insurance, controlling financial recovery, and managing health and safety.
What is enterprise risk management (ERM)?
Enterprise risk management is an approach that is used to identify, analyze, and manage areas of exposure in a company.
Instead of risk management being delegated to every business unit, an EMR framework will consider the entire company.
With ERM, the strategic business objectives and company mission will be analyzed, and any risks that technology poses to the company will be identified.
ERM can increase a company’s risk landscape visibility since it continuously monitors internal and external threats.
In addition, risk assessment is done through a much wider lens and facilitates a more holistic approach that identifies the opportunities and threats.
Enterprise risk management tends to be more strategic and focuses on planning, organization, directing, and regulating your risk activities.
ERM allows business owners to review their strategic objectives and information technology risks.
Some risks reflect exposures that, although damaging, may not threaten the company’s overall health or ability to achieve its business objectives.
In the last few years, key drivers of enterprise risk management that have transformed how businesses handle risks in the modern world include digitalization, focus on business continuity, and regulatory compliance.
What is the difference between the two?
Type of risks
ERM emphasizes reviewing strategic business decisions and the risks that your technology poses to them. For instance, a retail company may have a website offering product information but concentrates on its physical store.
However, they should also start selling their products online if they want to expand their reach and grow the business.
ERM refers to looking at new risks to your business that arise from change, such as choosing vendors, managing a vendor, and novel information technology compliance requirements.
Conversely, integrated risk management components mainly analyze risks inherent to business technologies.
For example, IRM means reviewing specific technologies. For example, such as tag management or customer tracking systems that retailers connect to their websites for payment and custom tracking purposes.
The integration between these technologies is part of integrated risk management.
ERM implementation is more costly compared to IRM
Implementing enterprise risk management technology can be more expensive and time-intensive than IRM. However, this makes them ideal for large organizations with the infrastructure and budget for EMR implementation.
An IRM framework is suitable for small and mid-sized businesses because of its cost-efficiency and easy implementation.
Enterprise risk management is more agile, dynamic, and adaptable to organizations or situations.
However, integrated risk management components are not flexible since they are well-established. Moreover, they are commonly practiced across businesses, making them relatively standardized.
ERM is more recognized as the more fluid and adaptable of these two risk management techniques.
Reactive and sporadic vs proactive and consistent
IRM is a reactive and sporadic risk management form that only occurs after an incident to help prevent its reoccurrence.
ERM is a proactive and consistent risk management strategy that attempts to predict any potential events before they happen while considering their probability and impact on the business.
Integrated risk management activities are usually borne out of specific events to which the company’s management responds. As a result, managers, executives, and support staff may go into a scramble mode whenever something comes up.
By taking a more proactive approach, such as ERM, organizations can get in front of the risks or seize opportunities to help them achieve their strategic objectives.
A proactive approach may take two courses, such as identifying emerging risks or preparing for current-day risks that may affect the company down the road.
However, the debate between ERS and TRM will never go away any time soon.
However, we hope that by exploring some of the differences between the two, we have assisted you in understanding which risk management technique can elevate your approach to risk.
Risk is crucial to running a business, regardless of shape or size.
Over the years, small and medium-sized companies increasingly depend on big data and cloud technology to support modern commerce.
Approaching these innovative systems using an effective risk management approach will go a long way in building effective and long-lasting business strategies.
However, the debate on ERM vs. TRM will still be alive for a while.
That said, we hope that by touching on some of the differences, you now appreciate why enterprise risk management can help optimize your approach to risk.
Furthermore, delivering a degree of board understanding and oversight not seen in a traditional risk management strategy.
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