Exposed – How Risk Management is Business Equivalent of Your Homeowners Insurance

Although you may agree it sounds like it is needed, creating or improving a risk monitoring program, much less an Enterprise Risk Management (ERM) or operational risk management (OPR) program to anticipate or plan for business risks sounds overwhelming in terms of the time and money it would take. Just think of those Sarbanes Oxley nightmares and overruns. In today’s volatile economic climate where cash and liquidity must be husbanded, how do you afford such a champagne sounding budget item in today’s beer budget reality?

Since the first sale is to yourself, let’s start with suggesting a more practical way to think about risk management, in whichever of the versions above you like the sound of.

Think about this in the framework of your homeowner’s insurance policy,
o You hope you never collect because that means a disaster or very painful event occurred. Your risk management program can be very similar.
o You want to get protection against catastrophic situations, like the events which occur to other businesses, which you read about in the Wall Street Journal or your regional newspaper.
o You want your business resource allocation required to reasonably feel you created that protection to be a reasonable level – i.e. at a reasonable price.
o You hope your process prevents or mitigates major catastrophes – so you never collect on your investment of business resources.

Once you are comfortable with moving to implement or expand your risk monitoring program, you can research in more detail the options of (a) enterprise risk management (ERM), (b) operational risk management (OPR), (c) corporate governance, (d) an internal report or consultant survey, (e) contingency planning, (f) a due diligence review, (g) an acquisition review, (h) a merger and acquisition review, (i) an operational assessment, or (j) a strategic facilitated top management session in this approach.

Whichever version or flavor of those activities you or your company decide fits your needs, you can then move forward further or at least get started in the management arena more comfortable that you are balancing a return on investment (ROI) while balancing risk and reward..