ERM from a cost factor to a value driver
Companies create value not through the documentation of risks, but through better decisions, more effective protection, and the targeted utilization of opportunities.
Who puts risk management first Identification and Rating by Risks reduced, leaves a large part of its economic benefit unused. Successful companies use it ERM Not only to prevent losses, but also as a tool for increasing value, improving performance, promoting growth, and building trust. The four management dimensions Value Protection, Performance Improvement, Value Creation, and Compliance & Assurance illustrate the contribution of a modern approach to risk management in terms of fifteen specific benefits. ERM to contribute to sustainable corporate development.
Risk management as a driving force for the 4 management topics
4 management topics in which ERM can provide real value:
VALUE PROTECTION
Goal: Protection of assets, revenues, reputation and business viability.
PERFORMANCE IMPROVEMENT
Goal: Higher management quality, as well as better decision-making and resource utilization.
VALUE CREATION
Goal: Recognize opportunities, successfully achieve strategic goals, and generate competitive advantages.
COMPLIANCE & ASSURANCE
Goal: The added value gained in the recent past is based on trust in the company’s management.
"Risk management not only protects values, but also helps management and the supervisory board make better decisions and increase the company's value."
A. VALUE PROTECTION - The most expensive risks are often not listed on the risk list.
01. Early detection of problems
Benefits: Risks are detected before they become a cause of damage or a crisis.
Example: A software provider recognizes rising cyber threats and invests early. Security measures. A later data loss can be prevented.
02. Protection of assets
Benefits: The company's tangible and intangible assets are protected.
Example: A production facility identifies the risk of failure of a critical manufacturing system and installs redundancies as well as preventive maintenance programs.
03. Increasing corporate resilience
Benefits: The company will be more resilient to crises and unexpected events.
Example: During a Supply chain disruption Thanks to previously defined alternative suppliers, a company can maintain production.
04. Reduction of financial losses
Benefits: Risks cause less damage or are completely avoided.
Example: Through consistent debt management, credit defaults for customers are significantly reduced.
05. Protection of reputation and brand
Benefits: Reputation damage can be detected and avoided early on.
Example: A food manufacturer identifies quality defects in time and initiates a controlled product recall before a major damage to its image occurs.
"Value Protection answers the question: What do we need to protect in order for our company to continue operating successfully tomorrow?"
B. PERFORMANCE IMPROVEMENT - Bad decisions cost more than the risks incurred.
06. Improved decision quality
Benefits: Management decisions are not based solely on Chances, but also on the associated Risks.
Example: Before a company takeover, integration risks, cultural differences, and potential customer losses are evaluated. The management receives a well-founded basis for decision-making.
07. Optimization of resources and investments
Benefits: Investments can be made specifically where Risk and benefit in the best possible ratio.
Example: One company focuses security investments on particularly critical IT systems instead of distributing budgets evenly.
08. Increasing planning certainty
Benefits: Projections and planning become more realistic and more reliable.
Example: A construction company already takes material price risks and delivery bottlenecks into account when calculating the project budget.
09. Improving communication and transparency
Benefits: Management, the board of directors, investors and other stakeholders obtain a common understanding of the risk situation.
Example: A Risk dashboard shows the top 10Corporate risks with trend, Probability of entry and Effects on the company's goals.
"Performance Improvement answers the question: How can we make better decisions and use our resources more effectively?"
C. VALUE CREATION - Those who do not take risks leave opportunities to the competition.
10. Ensuring the company's goals are achieved
Benefits: Risks They can endanger the achievement of strategic, operational or financial goals. Risk management creates transparency about these dangers.
Example: A mechanical engineering company plans to expand into Asia. Risk management Identifies political uncertainties, currency risks, and supply chain issues early on. This allows the market entry strategy to be adapted accordingly.
11. Support for innovation and growth
Benefits: Risk management does not prevent innovation, but enables deliberate implementation of calculated decisions Risks.
Example: A company develops a new AI product and systematically evaluates technical, regulatory, and Market risks. This can speed up the market introduction.
12. Support of the company strategy
Benefits: Risks and Chances are directly linked to the strategic objectives.
Example: In the digitalization of business processes, technological, regulatory, and personnel Risks in relation to the strategic potential benefits.
13. Creating sustainable corporate value
Benefits: Long-term survival and increase in company value.
Example: A company recognizes early on ESG and sustainability risks and adapts its business strategy to future market requirements.
"Value Creation answers the question: How does risk management help create new value?"
D. COMPLIANCE & ASSURANCE - Compliance is not the goal. It is the ticket to entry.
14. Improving compliance and governance
Benefits: Legal, regulatory and internal requirements are met.
Example: A bank systematically monitors regulatory compliance Risks and avoids high fines due to Compliance-Violations.
15. Reduction of insurance and financing costs
Benefits: Banks, investors and insurers assess professionalism Risk management positively.
Example: A company with proven effective Security and control measures receives more favorable cyber insurance premiums.
"Compliance & Assurance answers the question: How do we build trust among supervisory boards, customers, investors and authorities?"
Consequence for a modern ERM
Most companies today focus approximately 60-70% on compliance & assurance and value protection, which results in Risk management often referred to as Cost factor is perceived:
- Risk inventory
- Risk Register
- Top 10 risks
- Heat Maps
- Audit requirements
- regulatory reporting
A mature and modern Risk management shifts the Focus more on:
- Strategy support
- Decision support
- Capital allocation
- Performance control
- Opportunity management
Then the following perception arises:
„Risk management It not only protects values, but also helps management and the board of directors to make better decisions and increase the company's value.“
In my opinion, exactly this line of argument is ideal for positioning the OPTURE ERMAway from the classic Top 10 risk management software Towards a Risk & Performance Intelligence Platform (OPTURE RegOS), which covers the four management dimensions Protect, Improve, Create and Assure supported.
That is much more attractive for CEOs, CFOs and board members than another Heat-Map-Solution, with Risks, which they should already know…
