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Enterprise Risk Management (ERM) is the practice of planning, coordinating, executing and handling the activities of an organization in order to minimize the impact of risk on investment and earnings. ERM extends the approach to incorporate not only risks connected with unexpected losses, but also strategic, financial and operational risks.
ERM also may be identified as a risk-based process that is used to manage an enterprise, integrate internal control principles and perform strategic planning. ERM is innovative in that it is geared toward managing the growing requirements of numerous stakeholders who need to realize the broad range of risks faced by complex organizations, helping ensure proper management.
ERM allows enterprises to meet efficiency and productivity objectives and avoid resource shortages. It also ensures beneficial reporting and compliance with legal guidelines. In general, ERM helps enterprises attain expected objectives by avoiding surprises and pitfalls.
ERM provides enterprises with a framework for managing risks, including:
By recognizing and proactively handling opportunities and risks, enterprises can safeguard and build value for their stakeholders, including entrepreneurs, staff members, clients and regulators.
Advantages of ERM include: