How To Build Resilience In An Unpredictable Marketplace
Risks are inherent in today’s unpredictable marketplace. An enterprise risk management (ERM) framework can help owners and executives manage business risks more effectively. This article promotes the creation of a structured approach to risk management that’s designed to go beyond simply identifying risk and proposes a more holistic approach. Read on to learn more about some excellent best practices for your business.
Read Also: Fortifying Your Business With Enterprise Risk Management
Think Holistically, Not Reactively
ERM involves more than just identifying risks; it is a comprehensive, enterprise-wide process. Internal control constitutes only a minor component of ERM. It may also include strategy setting, governance, stakeholder communications, and performance measurement. These principles are applicable at all business levels, across all functions, and to organizations of any size.
ERM frameworks assist managers in foreseeing risks and perceiving change as opportunities rather than just crises. In essence, ERM enhances positive results and reduces unexpected negative consequences from risk-related activities.
Stay Ahead Of Risks With COSO’s Guidance
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) was established in July 1985. It is a collaborative effort by the American Institute of Certified Public Accountants, Financial Executives International, Institute of Internal Auditors, American Accounting Association, and Institute of Management Accountants.
COSO initially aimed to tackle fraudulent financial reporting, but its focus has broadened over time. Presently, COSO’s Enterprise Risk Management – Integrated Framework is fundamental to contemporary risk management practices. COSO consistently revises its guidance to address new risks. Recent updates include:
Guidance for Applying ERM to Environmental, Social and Governance (ESG)-related Risks (2018).
This update emphasizes emerging ESG risks, including extreme weather events, product safety recalls, workplace discrimination, unethical labor practices, and corporate corruption. By incorporating ESG risks into the ERM framework, businesses can proactively mitigate potential threats and leverage sustainability-driven innovation and competitive advantages.
Managing Cyber Risk in a Digital Age (2019).
Cybersecurity threats are strategic business risks impacting financial performance, reputation, and regulatory compliance. This guidance stresses protecting critical digital assets, assessing vulnerabilities, implementing internal controls, and developing incident response plans. Remote work environments are especially vulnerable, often lacking corporate network security measures, making them prime targets for cybercriminals.
Compliance Risk Management: Applying the COSO ERM Framework (2020).
This update offers a methodical approach to incorporating compliance risk into an organization’s overall risk management framework. By integrating compliance with the broader ERM strategy, companies can better anticipate regulatory changes, minimize legal risk, and ensure adherence to business standards.
Fraud Risk Management Guide: Second Edition (2023).
This update builds on COSO’s 2016 fraud risk guidance, incorporating lessons from recent fraud cases and advancements in detection methods. It outlines key elements of fraud prevention, including risk governance, internal controls, and a “fraud risk culture.” The guide also covers ethical leadership, whistleblower protections, and employee training as essential components of a fraud prevention program.
Alternative Data: The COSO Perspective (2024).
This guidance highlights the benefits and risks of using nontraditional data sources like satellite imagery, social media analytics, and geospatial tracking for risk management. These sources can improve predictive analytics and decision-making, but COSO warns of privacy concerns, regulatory compliance risks, and data integrity issues.
The Best Defense Is A Strong Offense
While not legally required, many companies adopt COSO’s ERM framework to enhance risk management, decision-making, and value. COSO’s guidance highlights the importance of technology and data analytics. Using automation, AI, and real-time data can improve monitoring, reporting, and resilience.
Effective risk management necessitates expertise, strategic foresight, and a robust Enterprise Risk Management (ERM) framework. Our accounting professionals are equipped to assist you in identifying, assessing, and optimizing risks. Learn more about our Enterprise Governance, Compliance, and Risk services, or contact us today to discuss cost-effective ERM strategies specifically tailored to your business requirements.
Looking for additional insight into risk management, check out these resources:
Every Control Framework Has Risk Assessments As A Key Component
How Effectively Do You Manage Risk?
Are Your Risk Management Practices Keeping Up With The Times?
