Risk management is the process of planning, organizing, leading, and controlling an organization’s activities to minimize the impact of risk on its capital and earnings. Enterprise risk management (ERM) expands this approach by addressing not only risks from accidental losses but also financial, strategic, operational, and other potential threats. In recent years, external factors such as regulatory bodies, industry standards, and investors have increased the focus on ERM, prompting closer scrutiny of companies’ risk management policies and procedures. In many industries, boards of directors are now required to review and report on the effectiveness of the risk management processes within the organizations they oversee.

The goal of ERM is to strike a balance between risk and value creation. Without assuming a certain level of risk, growth would be impossible. Every organization’s risk tolerance and appetite vary, which is why each approach to risk management is unique. By understanding and managing these risks, organizations can position themselves to grow while minimizing potential negative impacts on their capital and earnings.