Enterprise Risk Management Implementation Examples

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Introduction

Today’s business segment is a constantly modifying concept, with the changes caused by unstable market and economy, and social issues of any kind. As a result, many enterprises, regardless of their scope and area of expertise, suffer from rapid shifts in terms of both local and global economies, as they have little possibility to anticipate the economic patterns. However, in order to obtain a better perspective on resource allocation in case of a crisis, researchers have coined a process of enterprise risk management (ERM). The notion serves as an umbrella term for a number of procedures and stands for a framework developed for the companies, which should be followed to extract major benefits from downside risk (Agarwal and Ansell). To achieve this, a company is to be able to adapt an agile framework within the enterprise that would be capable of modifying its variables in terms of the current market trends and socioeconomic prerequisites. In the course of the following paper, an example of both successful and unfavorable implementation of the ERM, assessing the basic reasons behind each of the outcomes.

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Example of Successful Implementation

When speaking of the examples of the EMR implementation within an enterprise, the very notion of success should be supported by some measurable results. For the process of risk implementation, such factors, for the most part, include the qualitative effect on an average customer and the percentage of resource loss for each of the anticipated scenarios. In order to conduct such an explicit investigation, a company should have an extensive corpus of primary data to analyze and predict the potential outcome of a certain disaster. For this reason, big companies are the ones who pioneer the management model integration due to the opportunity to apply a certain scenario at the shortest notice.

One of the examples of such a successful EMR implementation is the current risk management policy of the Atlantic Group – one of the world’s biggest suppliers of goods. Since its priority is to ensure trade deals with countries all over the world, the influence of the external factors on the organization’s climate is enormous. International conflicts, increasing socioeconomic disparities between the states’ profits, and global disasters such as world pandemic, inevitably influence the pattern of an organizational workflow. Thus, following the suit of some major financial enterprises (e.g., international banks) that frequently utilize the ERM model, the Atlantic Group decided to implement the framework in order to create an agile network of trade relations.

For example, the company’s branch in Kosovo, Serbia, implemented the following model to adjust to the ongoing war conflicts and economic issues (Barjaktarović). Hence, the probability of facing financial losses has significantly decreased due to the company’s ability to deal with the risks at the local level. Moreover, the success of the following reform could also be measured by the number of CEOs and employees who become well aware of the risk management strategies and potential implications of ignoring the beneficial aspects of risk-taking within the enterprise.

Example of Unfavorable Implementation

As it was already mentioned, the vast majority of the ERM implementation rate is constituted by the financial establishments, as they have to deal with the risk of resource damage on a daily basis. Thus, they have to anticipate the probability of pattern modification constantly, being able to respond to the crisis in a way beneficial for the overall financial flow. It especially concerns the management of the bank segment, as it is responsible for the money of all the stakeholders and the state as a whole. However, quite often, the banking industry faces challenges because of the inability to update the risk management model in a timely manner, addressing the specific issues tackling economics at the time. As a result, the ERM, while officially implemented, fails to meet its goal of preventing the damage and using opportunities introduced by the crisis instead.

A prime example of such an inefficient strategy is the case study of the Islamic bank Arcapita and its managers’ behavior during the 2007-2008 global financial crisis. In fact, the notions of corporate governance and risk management were applied to the establishment of tears before the crisis emergence. Yet, the designed framework of the action plan in case of a crisis was rather limited, as it was based upon previous records and statistics exclusively. The risks of the bank’s losses were calculated in accordance with the company’s average profits over the previous decades, implying that in order to either increase or hold the enterprise’s solvency rate, it had to sell a certain amount of acquisitions in a relatively small timeframe (Alhammadi et al.). As a result, instead of creating an agile pattern of crisis addressing, Arcapita created a resource-bound model unable to process a timely risk response.

Conclusion

Considering the following examples of integrating enterprise risk management models within the company’s framework, one might develop a number of some basic principles of successful model implementation. To begin with, EDM is always about anticipating the possible outcome to the most precise extent, considering both internal and external factors of the workflow disruption. Secondly, it is of crucial importance to develop the flexibility of the case scenarios for them not to be bound to certain variables, or the overall concept of risk management will be violated. When following these principles, an enterprise has a significant chance to remain relevant in the market when challenged by a crisis.

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Works Cited

Agarwal, Ruchi, and Jake Ansell. “Strategic change in enterprise risk management.” Strategic Change, vol. 25, no. 4, 2016, pp. 427-439.

Alhammadi, Salah, Simon Archer, and Mehmet Asutay. “Risk management and corporate governance failures in Islamic banks: a case study.” Journal of Islamic Accounting and Business Research, 2020.

Barjaktarović, Lidija, et al. “Implementation of the ERM concept in Serbia: Comparative analysis: Real sector and financial sector.” Bankarstvo vol. 46, no. 2, 2017, pp. 50-67.

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BusinessEssay. (2022, February 6). Enterprise Risk Management Implementation Examples. Retrieved from https://business-essay.com/enterprise-risk-management-implementation-examples/

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BusinessEssay. 2022. "Enterprise Risk Management Implementation Examples." February 6, 2022. https://business-essay.com/enterprise-risk-management-implementation-examples/.

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