A holistic approach
Enterprise Risk Management (ERM) has become critical for organizations as it offers a holistic approach to managing risks. Historically, organizations managed risk in silos; managing different types of risks, such as financial, operational, strategic, compliance and health and safety risks in different areas of the business without a systematic approach. Traditional risk management practices like these fail to recognize that different risks can overlap and have a compounding effect, thereby hindering the achievement of organizational objectives.
ERM overcomes these problems by taking a broad, holistic and strategic approach to managing risk. It integrates risk management into decision making in all aspects of the organization, including strategy formation, compliance, reporting and daily operations.
The ERM Journey
Organizations across the world are embracing ERM and are in different stages in their ERM Journey. Most Maldivian institutions are in the introductory phase of ERM implementation. More research is required to understand, in detail, the level of ERM implementation in Maldivian Institutions, as well as the challenges and benefits that an ERM system can bring to these organizations. The ERM Maturity Model developed by ISO 31000 enables organizations to rate the progress of their ERM journey against best practices, benchmark it against other organizations in the industry and identify areas for improvement.
Governance regulations leading ERM
In the Maldives, ERM implementation is being led by the Financial Institutions, followed by Publicly Listed Companies and State Owned Enterprises. Most institutions have adopted ERM for compliance purposes in the wake of new Governance regulations for Financial Institutions issued by the Maldives Monetary Authority, and the Governance regulations for SOEs issued by the Privatization and Corporation Board of the Ministry of Finance. Public companies listed in the Maldives are required to follow Corporate Governance regulations for Publicly Listed Companies set out by the Capital Market Development Authority. Such regulations have made it mandatory, for the organizations for which they are applicable, to have a robust risk management system in place.
The benefits to be gained from having an ERM system and conducting risk assessments are not only available for listed companies, SOEs and financial institutions. ERM can be implemented in private sector businesses, government departments and in NGOs.
Globalization and ERM
ERM has become crucial for Maldivian businesses as a lot of Maldivian companies are now doing business globally, subjecting them to different forms of risks that arise from conducting operations in different economic, political, geographical, cultural and other global uncertainties. The Maldives also attracts a lot of Foreign Direct Investments and foreign investors who need to be advised on the different types of risks they are being exposed to, in the country. Thus, globalization necessitates proper Risk Management capabilities in organizations. Doing business globally means such companies are subject to compliance with the governance requirements of different countries and business environments.
ERM and Firm Value
ERM adaptations are claimed to provide long term competitive value to firms by optimizing the trade off between risk and returns whilst improving firm value. More research is required to identify the level of value being created by Maldivian institutions with ERM adoption. What is apparent is that those institutions which have implemented ERM will be automatically reducing their compliance risks by following best practices for corporate governance while reducing other forms of risk by managing them in a systematic manner.
ERM as a Journey
The practice of implementing ERM as a box ticking exercise fails to recognize its real value. ERM implementation in any organization is not an easy task. It requires commitment from top management, expertise and experience personal in risk management and the development of a risk aware culture throughout the organization which can be cultivated through having proper policies, procedures and training.
Need help with Enterprise Risk Management?
If you require help in implementing ERM in your organization, let the expert consultants at Achievia guide you through the process and provide you with all the necessary tools, techniques and expertise to develop a robust ERM system. We are very passionate about what we do, have experience in implementing ERM systems and are committed to helping Institutions and businesses to reach world class in their risk management capabilities.
