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Third Party Risk Management

How to implement ERM (Enterprise Risk Management) in 2024

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From compliance and financial risks to cybersecurity and operational risks, modern organizations have a ton of risks to manage.

Without a well-documented risk management plan, navigating potential risks effectively can be a tough task. 

By implementing a robust risk management program, organizations can proactively identify, assess, and manage potential risks effectively.

But where do you begin?

In this guide, you will learn how to implement an enterprise risk management framework.

Specifically, we’ll discuss what enterprise risk implementation is and the most common types of ERM frameworks. We’ll then explore the challenges of implementing a successful ERM program.

Finally, we’ll show you how Cybersierra can help with successful enterprise risk management implementation.

Let’s get started.

What is ERM Implementation?

Enterprise risk management (ERM) is a comprehensive approach to managing potential risks that an organization may face. It involves a top-down approach to identifying, assessing, and mitigating various risks, both internal and external, that could impact the organization's objectives.

ERM implementation starts with establishing a risk management program that identifies the organization's risk profile. This includes analyzing potential risks and developing a risk mitigation strategy to address them efficiently.

Risk managers play a crucial role in implementing ERM, working closely with top-level executives to ensure a comprehensive approach. 

This includes engaging with external stakeholders, such as customers and suppliers, to understand their risk concerns and incorporate them into the organization's risk management plan.

Effective ERM implementation helps organizations anticipate and prepare for future risks. This enhances their resilience and ability to adapt to a constantly evolving business environment.

Generally, there are six types of business risks covered by ERM which are:

  • Compliance risks: Compliance risks refer to risks that arise from legal or regulatory violations that can result in fines, penalties, or reputational damage. These critical risks stem from a company's failure to adhere to relevant laws, regulations, and industry standards. Effective ERM helps organizations develop a strong risk culture and implement robust compliance management strategies.
  • Legal risks: Legal risks encompass the potential for lawsuits, contractual disputes, and other legal issues that can have significant financial and operational consequences for a business. ERM enables organizations to proactively identify and mitigate these individual risks, ensuring compliance with relevant laws and protecting the company's interests.
  • Strategic risks: Strategic risks are those that threaten a company's ability to achieve its long-term objectives. These can include market shifts, competitive threats, and changes in customer preferences. ERM helps organizations assess and respond to these wide-ranging strategic risks, allowing them to make informed decisions and maintain a competitive edge.
  • Operational risks: Operational risks are internal risks that arise from the day-to-day functioning of a business, such as system failures, human errors, or supply chain disruptions. A successful ERM program enables organizations to identify and mitigate these types of business risks, ensuring the continuity of operations and protecting against financial and reputational damage.
  • Security risks: Security risks encompass risks such as cyber-attacks, data breaches, and other threats to an organization's information systems and assets. Effective enterprise risk management strategy helps organizations develop robust security measures, implement risk management strategies, and maintain a strong risk culture to protect against these critical risks.
  • Financial risks: Financial risks are those that can impact a company's financial performance, such as currency fluctuations, interest rate changes, and credit risks. ERM enables organizations to assess and manage these risks, ensuring financial stability and supporting the achievement of strategic objectives.

Phases of Successful ERM Implementation

Successful ERM implementation is crucial for effective risk management. It encompasses the following key phases:

Phase 1: Context Understanding and Criteria Definition

In the initial phase, organizations must establish a clear understanding of the ERM context and criteria. This involves defining strategic objectives and understanding the risk landscape. 

Management integrates current and potential risk exposures, recruits an ERM team, and sets the foundation for a risk control environment. This phase ensures alignment between ERM strategies and business objectives, facilitating a comprehensive approach to risk management.

Phase 2: Risk Identification and Assessment

The second phase focuses on the risk identification process and assessment. Organizations adopt various risk management tools and methods to uncover potential risks, including compliance risks, operational threats, and strategic challenges.

Leveraging industry standards, regulations, and risk management solutions, they calibrate their risk "yardstick" and use tools like Risk and Control Self-Assessment and Key Risk Indicators to evaluate impacts on performance.

Phase 3: Integration into Business Practices

During the third phase, ERM practices are integrated into daily business operations. This integration aligns with corporate strategy and risk criteria to ensure that ERM activities are prioritized in strategic planning, business process design, and overall business objectives. 

Organizations need to establish monitoring and reporting structures to embed ERM into the organizational fabric. This helps to create a seamless connection between risk management and business functions.

Phase 4: Establishing ERM as an Ongoing Discipline

The final phase emphasizes that ERM is a continuous process, not a one-time exercise. It involves creating a culture where ERM practices are ingrained at all levels of the organization. 

Management regularly assesses ERM capabilities and performance, adjusting practices to reflect the evolving risk landscape. This ongoing process supports a proactive stance towards future risks and enhances the organization’s ability to adapt and thrive amidst uncertainties.

Examples of ERM Frameworks

Here are examples of leading enterprise risk management frameworks that offer effective and sustainable ways for organizations to manage complex and unexpected risks: 

NIST Cybersecurity Framework 

NIST CSF is a risk management framework developed by the National Institute of Standards and Technology to enhance the cybersecurity of critical infrastructure. 

It provides a comprehensive set of guidelines and practices for organizations to identify, protect, detect, respond, and recover from cybersecurity risks. 

The framework enhances visibility into potential impacts, aligning cybersecurity activities with strategic goals and strategic planning. 

Setting industrial benchmarks can help organizations standardize their cybersecurity measures. Board of directors uses it to oversee the implementation process and ensure that cybersecurity risks are adequately managed. 

NIST CSF's importance lies in supporting the creation of a risk management plan that covers risk exposure and risk acceptance while fostering an organization's risk strategy and action plans to mitigate identified risks effectively.

ISO 27001

ISO 27001 is an international standard for information security management systems (ISMS). It provides a systematic approach to managing sensitive company information so that it remains secure. 

This ERM framework emphasizes an implementation process involving the development of a risk management framework that identifies information security risks and implements controls to mitigate them. 

ISO 27001 is crucial for achieving compliance and reducing risk exposure to data breaches, thereby enhancing customer service. Its guidelines aid organizations in aligning their risk management activities with their overall strategic goals and developing comprehensive risk plans.

ISO 31000:2018

ISO 31000:2018 provides principles, a framework, and a process for managing risk. It can be applied to any organization regardless of size, activity, or sector. This framework helps organizations integrate risk management into their overall strategic planning and operational processes. 

It promotes a consistent approach to risk management activities by establishing a solid risk management plan that addresses various types of risks, from strategic to operational. 

ISO 31000 emphasizes the importance of a thorough risk management framework for identifying potential risks and developing action plans to mitigate them. 

The COBIT ERM Framework

The COBIT ERM Framework (Control Objectives for Information and Related Technologies) focuses on aligning IT risk management with corporate governance and business goals. 

It provides a comprehensive structure for integrating IT governance with enterprise risk management, facilitating a risk strategy that supports overall strategic goals. COBIT helps in managing IT-related risks and improving customer service by ensuring IT systems’ reliability and efficiency. It sets industrial benchmarks for IT governance, allowing the board of directors to oversee IT risk effectively. 

COBIT's implementation process involves detailed risk management activities such as identifying IT risks, assessing risk exposure, and creating action plans for mitigation. 

It offers a structured approach to developing a risk management plan that ensures IT risks are systematically managed and aligned with the organization’s broader risk management framework.

Committee of Sponsoring Organizations of the Treadway Commission (COSO) ERM Framework

COSO ERM Framework provides a robust approach to identifying, assessing, managing, and monitoring enterprise risks. It aligns risk management with strategic planning, ensuring that risk management supports an organization’s strategic goals.

COSO offers a detailed implementation process for developing a comprehensive risk management plan, addressing risk exposure, and formulating risk acceptance criteria. 

It emphasizes the role of the board of directors in overseeing risk management and ensuring that risk strategies are integrated into the organization’s overall governance framework. 

By fostering a culture of risk awareness and proactive management, COSO enhances visibility into the potential impacts of risks and helps organizations achieve industrial benchmarks in risk management. 

This framework is crucial for creating action plans that address risks comprehensively, and supporting customer service through improved resilience and operational effectiveness.

The Risk Management Society (RIMS) ERM Framework

The RIMS ERM Framework provides a structured approach for organizations to manage risks across various domains. It focuses on integrating risk management into an organization’s culture and operations, ensuring that risk considerations are part of the strategic planning and decision-making processes. 

RIMS offers a detailed methodology for creating risk management plans that address diverse risks, promoting a holistic risk management activity that covers the identification, assessment, mitigation, and monitoring of risks. 

This framework helps in enhancing visibility into potential impacts and ensuring that risk strategies are aligned with the organization’s strategic goals. 

Each framework provides a unique approach to ERM, helping organizations to align risk management with their strategic objectives, enhance visibility into potential risks, and improve overall resilience and performance.

ERM Implementation Challenges

Implementing an effective enterprise risk management plan is crucial for organizational success but the process isn’t without its challenges. Here are the common challenges organizations face in implementing ERM programs

ERM-Implementation-Challenges

Siloed Risk Management Practices
ERM implementation often faces challenges due to siloed risk management practices within an organization. This can lead to a lack of coordination and visibility across different departments, making it difficult to identify and mitigate prevalent threats such as cyber threats.

Limited Visibility into Risks
Organizations struggle to gain a comprehensive understanding of their risks due to limited visibility into the various risk factors. This can hinder the development of effective risk management strategies and resource allocation, ultimately impacting the organization's overall resilience.

Inconsistent Risk Management Processes
Inconsistent risk management processes across different departments can lead to inefficiencies and a lack of standardization. This can result in inadequate resources being allocated to address key stakeholder expectations and achievable objectives.

Lack of Qualified Personnel
ERM implementation requires specialized skills and expertise. The lack of qualified personnel can hinder the development of effective risk management strategies and the implementation of adequate resources to address prevalent threats.

Difficulties in Defining/Quantifying Risks
Defining and quantifying risks can be a significant challenge for organizations. This can lead to difficulties in establishing clear action items and resource allocation, ultimately impacting the organization's ability to address stakeholder expectations.

Challenging Regulatory Environment
Organizations must navigate a complex regulatory environment, which can be challenging and time-consuming. This can divert resources away from addressing key stakeholder expectations and achievable objectives.

Resistance to Change
ERM implementation often requires significant changes to an organization's processes and culture. Resistance to change can hinder the adoption of new risk management strategies and the allocation of adequate resources to address prevalent threats.

Here are a few tips to avoid these challenges:

  • Ensure a single goal for ERM implementation to drive coordination and visibility.
  • Provide abundant resources to support qualified personnel.
  • Develop consistent risk management processes to address stakeholder expectations.
  • Establish clear action items and resource allocation to address prevalent threats.
  • Address regulatory challenges by maintaining adequate audit trails.

How to Implement an Effective ERM Program

Setting up and running an effective ERM program encompasses following a step-by-step process.

Here are crucial steps for successful ERM implementation.

Step 1. Establish a Risk Governance Structure

Establishing a risk governance structure is crucial for defining accountability and authority within the risk management framework. 

The governance framework facilitates the alignment of risk management with business strategy and ensures that adequate resources are allocated to manage accessible risks. Besides, it also promotes a culture of risk awareness, ensuring that all risk scenarios are systematically addressed and managed.

Start by assigning clear roles and responsibilities to key stakeholders to oversee various aspects of risk management. 

This structure should integrate with the organizational hierarchy, ensuring that risk considerations permeate all levels of decision-making. Appoint a risk committee or designate a Chief Risk Officer (CRO) to coordinate risk management activities, from risk identification to mitigation. 

Step 2. Define Risk Appetite and Strategy

Defining your organization's risk appetite and strategy involves determining the level of risk you are willing to accept to achieve your objectives. 

Begin by assessing the potential impact of various risk scenarios and align them with your business strategy and goals. From there, establish a clear risk appetite to guide decision-making and resource allocation. 

This will ensure actions taken align with the organization's tolerance for risk. 

Also develop a risk management strategy that outlines how to approach and manage different types of risks, including positive risks that offer growth opportunities. This strategic alignment ensures that your organization remains resilient against threats while capitalizing on potential opportunities.

Step 3. Identify and Assess Risks

Once you have defined your organization’s risk appetite and strategy, implement a thorough risk identification process to uncover potential threats. This could be cyber threats, compliance risks, human errors, and natural disasters. 

You can use a combination of tools such as risk assessments, scenario analysis, and risk management platforms to evaluate these risks comprehensively. 

Once identified, assess each risk to understand its potential impact and likelihood, prioritizing them based on their severity and relevance to your business operations. This continuous risk assessment enables you to pinpoint accessible risks and develop strategies to address them effectively. 

Ensure you engage key stakeholders in this process to make sure diverse perspectives are considered. This can lead to a more comprehensive understanding of potential risks.

Step 4. Establish Risk Assessment Methodology

The next step is to develop a standardized risk assessment methodology that provides a consistent framework for evaluating and prioritizing risks. This methodology should include criteria for rating risks based on their impact and probability, aligning with established risk management standards. 

Define processes for assessing both qualitative and quantitative aspects of risks to ensure a balanced approach. This helps in objectively evaluating risk scenarios and facilitates effective decision-making regarding risk mitigation and resource allocation. 

Implementing a robust risk assessment methodology also supports compliance with regulatory requirements by providing a clear audit trail of how risks are assessed and managed, enhancing the credibility and reliability of your risk management process.

Step 5. Develop Risk Mitigation Strategies

Next, create detailed risk mitigation strategies to address and manage identified risks effectively. These strategies should include preventive measures to minimize the likelihood of risk occurrence and contingency plans to reduce the impact if risks materialize. 

Ensure you tailor your mitigation approaches to different types of risks, considering both adverse risks and positive risks that may offer opportunities for gain. 

Also, ensure that these strategies are integrated into the business strategy and operational workflows to maintain a holistic approach to risk management. Effective risk mitigation also involves regular review and updating of strategies to reflect changes in the risk landscape and organizational priorities.

Step 6. Implement Risk Monitoring and Reporting

In this step, you need to establish robust systems for continuous risk monitoring to detect emerging threats and changes in existing risks promptly. Implement risk management platforms that provide real-time data and analytics to enhance your ability to track risks and measure the effectiveness of mitigation strategies. 

You need to develop clear reporting requirements that align with internal and external regulatory needs, ensuring that key stakeholders receive timely and relevant risk information. 

Regular risk reporting supports transparency and accountability which allows for proactive adjustments to risk management strategies based on current data. This ongoing process helps maintain alignment with business objectives and compliance standards, ensuring comprehensive risk oversight.

Step 7. Integrate Risk Management into Business Processes

Once done, embed risk management into daily business processes to ensure it becomes a fundamental part of your organization's operations. Use a risk management platform to seamlessly integrate risk activities with operational workflows, enabling continuous attention to risks as part of routine tasks. 

This integration promotes a proactive approach to managing risks, ensuring that risk considerations influence decision-making and resource allocation across all business units. 

Also, foster a culture of risk awareness by providing training and communication that emphasize the importance of risk management in achieving business goals. A holistic approach to integration ensures that risk management is not an isolated function but an integral aspect of organizational effectiveness.

Step 8. Conduct Independent Reviews

Next, schedule regular independent reviews of your risk management process to provide objective assessments and identify areas for improvement. Engage external auditors or internal audit teams to evaluate the effectiveness of your risk management strategies and compliance with risk management standards. 

These reviews should examine all aspects of risk management, from risk identification and assessment to mitigation and monitoring. Independent reviews offer valuable insights into potential weaknesses or gaps in your current practices, helping you refine your strategies and enhance overall risk management. 

This continuous process ensures that your risk management remains robust and aligned with best practices and regulatory requirements.

Step 9. Stay Abreast of Regulatory Requirements

Lastly, stay informed about evolving regulatory requirements to ensure your risk management practices comply with applicable laws and standards. 

Ensure you implement mechanisms to monitor changes in regulations that affect your industry and integrate these updates into your risk management platform and processes. 

Also, engage with regulatory developments proactively to mitigate compliance risk and align your organization’s risk management decisions with current legal expectations. 

To address new reporting requirements and maintain adherence to regulatory compliance, review and update your compliance strategies regularly. This approach ensures that your organization remains resilient against legal challenges and continues to operate within a compliant and secure framework.

Note that, without the right tool, implementing an effective ERM program can be challenging.

This is where Cybersierra becomes useful.

How can Cybersierra help in ERM Implementation

Cybersierra’s AI-powered cybersecurity platform enhances enterprise risk management (ERM) by offering comprehensive tools and services tailored to modern cyber risk landscapes. 

The platform provides a centralized platform for risk identification which enables organizations to uncover and evaluate a broad spectrum of risks, including cyber threats and compliance risks. 

Additionally, it integrates advanced risk assessment methodologies to accurately rate risks and prioritize them based on their impact and likelihood. 

Furthermore, the platform’s robust monitoring and reporting capabilities facilitate continuous risk assessment and generate detailed audit trails to help organizations maintain compliance with evolving regulatory requirements. Book a demo today to see how Cybersierra can help you with your ERM implementation process.

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Srividhya Karthik

Srividhya Karthik is a seasoned content marketer and the Head of Marketing at Cyber Sierra. With a firm belief in the power of storytelling, she brings years of experience to create engaging narratives that captivate audiences. She also brings valuable insights from her work in the field of cybersecurity and compliance, possessing a deep understanding of the challenges and pain points faced by customers in these domains.

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