Many businesses experienced countless challenges in a year marked by disruption and uncertainty. As businesses faced their unique challenges, the idea of resilience gained popularity. The disruptions caused by the COVID-19 pandemic forced companies to ask if they were ready for the challenges. In reality, organizational resilience is an ever-changing and increasingly complex subject. The approach helps companies achieve their objectives, recover and prosper after a disruption, and resist, absorb, recover, and adapt to achieve overall risk management. This article at Phys.org explains how organizations can adopt a new approach to enterprise risk management.
The New Enterprise Risk Management Approach
In recent years, various professional associations and government agencies recommended the adoption of enterprise risk management (ERM). Specifically, the COSO and ISO 31000 frameworks did so. ERM can help companies detect risks and seize opportunities. A research article published in ‘Long Range Planning’ examines essential enterprise risk management issues.
Copenhagen Business School conducted a new study based on survey data on 500 Denmark companies. According to their study, ERM frameworks are more effective when combined with strategic decision-making processes.
Professor Torben Juul Andersen at Copenhagen Business School explains that the key to reaping the advantages of formal ERM methods is to emphasize primary strategy-making efforts.
Effective Risk Management
According to research, policymakers and corporate leaders should consider more effective ways of managing the numerous unknowns and uncertainties. Future solutions should be based on a combination of rapid responses and continual assessments of developments and sustainable solutions. In sharp contrast, companies that facilitate local responses and engage in strategic planning outperform those that adopt formal ERM frameworks only.
Yielding Positive Outcomes
In general, adhering to ERM principles improves results. However, these results are substantially enhanced by decentralized responses and centralized strategic considerations. According to Professor Andersen, a formal risk management framework is not enough to effectively deal with uncertain and unknown conditions. Therefore, local responses and continuous analysis of strategic alternatives are required. The study encourages policymakers to craft solutions for events that surpass emerging and probable scenarios by experimenting. Today’s formal control-based approaches may limit the ability to develop innovative solutions to unexpected events and uncertain future conditions, says Professor Andersen.
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