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Implementation of the new model of enterprise risk management

Enterprise risk management comprises of methods and processes which corporate houses use to minimize risks in their business. This is a multi-step approach which aims at increasing profits of the shareholders by reducing the risks involved.

The Casualty Actuarial Society has come up with a new model of enterprise risk management. The new model outlines the risk categories and suggests the steps that should be taken while you put enterprise risk management into action. Here are the steps recommended by the new model to identify risks:

  1. The first step involves understanding the goals, strengths and weaknesses of the business house. This also includes analyzing the interaction of the company with the shareholders and identification of the risks which the company is exposed to.

  1. The model recognizes four risk categories namely hazard, financial risk, operational risk and strategic risk. It requires the business owners to classify the risks under these four categories.

  1. The model requires both quantitative and qualitative evaluation to guess the possible consequence of the risks which have been recognized in the preceding step.

  1. Next, a risk profile of the organization is to be created. It will be essentially based on the data which was found in the preceding steps.

  1. Prioritize the risks. Determine carefully which are the high level risks and require urgent attention.

  1. Now it is time for you to decide how to combat the risks. Depending on the company’s policies and goals, you might decide to exploit or avoid the risk which you are dealing with.

  1. The risk profile created previously needs to be continuously updated and monitored. You would need to critically examine the effectiveness of your present approach. Only constant evaluation will make the process full-proof.

The new model of enterprise risk management works in the above mentioned way. To analyze new risks, you would need to go back to the first step and repeat the whole process again. This is a scientific and logical approach which can effectively reduce the risks which a corporate organization faces.   

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