Enterprise Risk Management: What You Need to Know

Enterprise Risk Management (ERM) is a term making the rounds through small business entities across the nation.

There are a number of things you should know about ERM.

ERM refers to the methods and processes adopted by a business to control risk.

Forms of Risk Commonly Managed

There are several areas that may fall under the ERM category:

• capital management
• financial management
• operational risk
• strategic risk

Each area presents unique liabilities, which can be detrimental to the health of a company. Properly managed, each possible problem is defined and then weighted according to the likelihood and impact. Steps are then taken to reduce risk.

Issues and Insight

Research indicates that nearly 45% of small business owners do not have an ERM in place, yet more than one in three also indicate they were caught off guard by an operational surprise. Unfortunately, in an effort to avoid problems and limit risk, some small business owners actually create even larger problems by implementing ineffective protocols or even illegal provisions. It’s essential to work with a knowledgeable insurance agent to avoid complications.

Those seeking funding should also implement an effective ERM as soon as possible. Standard and Poor’s and banks intend to incorporate ERM into credit rating scores by the end of 2010.