Most organisations today are facing significant challenges when it comes to managing risks effectively. In particular, the rise of technology and unstable supply chains have created new risks that need to be managed to avoid potentially catastrophic consequences. As a result, Enterprise Risk Management (ERM) has arisen as a more holistic method of addressing the potential pitfalls and predicaments that face organisations operating in today's crisis affected world.
What Is Enterprise Risk Management (ERM)?
Enterprise risk management (ERM) is a comprehensive approach to managing an organisation's risks. ERM involves identifying, analysing, and responding to risks that could potentially impact the achievement of the organisation's objectives.
Usually, enterprise risk management falls under four categories:
- Financial risks: The stability of an organisation's financial position and its ability to generate cash flow.
- Operational risks: Internal processes that may be disrupted either due to external factors or an internally flawed system.
- Hazard risks: Anything that could potentially harm life or result in property loss or damage.
- Strategic risks: Anything political, economic, or demographic that may affect your business's ability to achieve its goals.
Risk Responses Under An ERM Framework
Unlike traditional risk management, ERM also accounts for risks that are not insurable. This means that risk response strategies may be slightly different under an ERM approach.
There are five categories of risk response strategies if your business is applying an ERM framework:
- Risk avoidance
- Risk reduction
- Alternative actions
- Share or insure
- Risk Acceptance
ERM proposes that risk is a natural part of every business and some level of risk-taking is required for a business to successfully operate. The potential costs of each risk are weighed against the potential benefits, allowing businesses to embed risk into their decision-making processes.
Why Is ERM So Important?
In an increasingly interconnected world, businesses are faced with new risks. Threats to data and cyber security, supply chains and economic stability are at an all-time high. Enterprise Risk Management addresses a wider range of risks, beyond just safety hazards and compliance. It examines your business as a whole and can identify risks that can affect all aspects of your operations.
This allows organisations to participate in proactive and preemptive risk management. When businesses are equipped with the foresight to predict potential risks, they can take action to mitigate them before they occur. This allows enterprises to operate with agility and maintain a competitive advantage.
Enterprise Risk Management In Saudi Arabia
Saudi Arabia is in the middle of a significant technological transformation. Under Vision 2030, the government aims to turn the nation into a regional tech hub, fuelled by innovation and entrepreneurialism. However, as the country's tech infrastructure gets upgraded and more businesses begin to take advantage of the latest technology to improve their processes, risk management becomes increasingly essential.
Saudi Arabia has been a popular target of cyber-attacks for several years. Many of them have resulted in significant data breaches. During the global pandemic, these cyber security failures resulted in skyrocketing revenue losses. In 2020 alone, Saudi Arabia experienced over 22 million cyber-attacks, leading to economic losses of around $6.5 million. In the first two months of 2021, there were a further 7 million recorded instances of brute-force cyber-attacks within the country.
The more widespread use of cloud data storage in Saudi Arabia has also introduced third-party risks to businesses that may not have been present before. The Internet of Things (IoT) is another emerging market, with 83% of medium to large Saudi businesses expected to have adopted some form of IoT solutions within their organisation by 2023. As the number of these interconnected devices multiply in every business, it will lead to a heightened level of endpoint vulnerability.
Additionally, supply chains have become increasingly reliant on digital systems and technology. This makes it essential for businesses to have an ERM strategy in place to protect themselves against the risks associated with sudden disruption to their supply chain supporting software.
The future of ERM in Saudi Arabia requires an increasingly integrated and holistic approach. As operations and internal processes grow in digital complexity, risk management and security teams will need to involve management across departments in the risk assessment process. Although the nation’s rapid technological advancement has opened the door to progress, it has also increased the need for businesses to adopt a more robust ERM strategy.
To discuss your ERM strategy contact Ahmad Al Zoubi.