In today's complex and uncertain global business environment, companies are constantly looking for ways to minimize risk. Specifically, many businesses are beginning to utilize a strategy known as enterprise risk management (ERM) as a means of identifying, assessing, and mitigating risks while working toward strategic goals.
But what exactly is enterprise risk management, and how does it differ from traditional risk management practices? With a better understanding of these concepts, you can determine whether a Master of Legal Studies degree program should be your next big career move.
Understanding Enterprise Risk Management (ERM)
Before diving in any deeper, it is important to understand ERM as a holistic and strategic approach to risk management. ERM differs from traditional siloed risk management practices in the sense that it has a robust framework that involves careful strategic planning, goal setting, risk response strategies, and continuous monitoring and reporting.
Defining ERM and Its Significance
In simplest terms, ERM can be defined as a strategic process designed to pinpoint, assess, and manage risk across every aspect of an organization. This in-depth assessment and management of a company's risk can aid leaders in making the most informed decisions to optimize operational efficiency, minimize potential losses, and maintain long-term sustainability.
The Evolution of ERM Practices
ERM as we know it today first emerged in the mid-1990s, although traditional methods of risk management in business date back further to about the 1920s. Since its emergence in the mid-1990s, ERM has grown to become a critical business function, particularly among larger organizations.
Over the years, many factors have driven ERM implementation in organizations globally, including:
- Global economic volatility and uncertainty
- Technological advancements
- Increased regulatory scrutiny
Core Components of ERM
There are several key components of enterprise risk management in an organization, with each working together to create a comprehensive risk management approach.
Strategic Planning and Goal Setting
ERM begins with an alignment of risk management and an organization's overarching strategic goals. The process of creating a comprehensive strategic plan and setting specific short- and long-term objectives before implementing an ERM ensures that the overall risk management methods being used will support the mission and values of the business as a whole.
Risk Identification and Assessment
Next, this top-down strategy continues with a thorough process of identifying and assessing potential risks that may have an impact on the organization's ability to achieve those goals and objectives. During this stage, a variety of risk assessment tools and techniques may be used to pinpoint risks and evaluate the likelihood and potential impact of different hazards.
Some enterprise risk management examples of tools that may be used in this stage include:
- Scenario analysis tools
- Risk quantification tools
- Automated analytics and reporting tools
- Strategic planning tools
Risk Response Strategies
Once organizations can identify and assess the biggest risks to reaching their goals and objectives, the next step is to determine which risk response strategies will be best for responding to and mitigating those potential risks. Typically, these strategies are carefully chosen based on an organization's unique risk appetite and risk tolerance.
Some enterprise risk management examples of risk response strategies that may be utilized here include:
- Risk avoidance
- Risk reduction
- Risk transfer
- Risk acceptance
Continuous Monitoring and Reporting
Even once an ERM strategy is implemented within an organization, the work is never quite complete. That is because ERM is not a one-time event but a continuous, ongoing process. By regularly monitoring and reporting on ERM strategies and their effectiveness, business leaders can optimize risk mitigation while potentially identifying new and emerging risks that may need to be addressed.
Steps for Effective ERM Implementation
While the exact steps required to implement ERM within an organization can vary based on the unique needs and goals of the company, most businesses can follow this general series of steps to carry out the ERM process successfully.
- Establish a risk management team
- Development a risk management policy
- Create a risk register
- Implement risk mitigation strategies
- Report and revisit strategies regularly for continuous improvement
The Role of Master of Legal Studies (M.L.S.) in ERM
If you are interested in helping organizations identify, assess, and mitigate risks while working toward long-term goals and objectives, then having a solid legal background can be extremely valuable. Specifically, obtaining your Master of Legal Studies (M.L.S.) degree can play a crucial role in ERM in a number of ways.
Integrating Legal Expertise into ERM Frameworks
For starters, graduates of an M.L.S. program can bring their extensive legal knowledge and skills to the table, helping organizations more successfully identify and assess legal risks. This can better inform an organization's risk response strategies to ensure they are operating in compliance with all industry-related laws and regulations.
Understanding Legal Compliance and Potential Risks in ERM Implementation
Speaking of legal compliance, an M.L.S. program will go into detail about the various legal compliance risks inherent across a wide range of industries. This includes finance, healthcare, technology, and more. With a better understanding of these potential compliance risks, M.L.S. graduates in ERM roles can help businesses better understand and navigate these complex regulations while protecting their own mission and bottom line.
Communicating with Legal Professionals in the ERM Decision-Making Process
One of the biggest challenges in designing and implementing an ERM within an organization is communicating highly complex legal topics between legal and non-legal teams. All too often, there is a disconnect between these groups that can lead to problems, including increased legal risks, down the road.
That said, with a background in legal studies, M.L.S. graduates can serve as effective and confident communicators between legal and non-legal teams. This helps ensure that legal risks can be properly understood and addressed within the ERM framework.
Implementing Legal Compliance Measures in ERM Strategies
Another way in which having an M.L.S. degree can add value to ERM strategies is through helping organizations implement legal compliance measures within their ERM frameworks. Specifically, those with a strong understanding of legal studies can assist organizations in developing and implementing risk mitigation strategies. Thishelps comply with all relevant industry laws and regulations for added legal protection and peace of mind.
Utilizing M.L.S. Skills and Knowledge in ERM Processes
Finally, graduates of a legal studies program can practically apply their analytical, research, and critical thinking skills in the design and implementation of an ERM strategy. These specific skills can be invaluable in helping organizations identify, assess, and mitigate risks to achieve short- and long-term objectives more readily.
Strategic Importance of ERM Across Industries
Today, ERM is used across a wide range of industries. Any field where there are risks being mitigated can benefit from ERM, especially when it comes to achieving goals and gaining a competitive advantage over businesses without these strategies in place. Some industries where ERM is most widely utilized include finance, real estate, healthcare, and technology.
ERM's Role in Financial Stability and Growth
Having a risk management framework in place can help financial institutions more effectively mitigate their risks, particularly those related to market volatility, regulatory compliance, operational disruptions, and credit. When ERM is used to identify and mitigate these risks, financial institutions can set themselves up for greater financial stability and improved long-term growth.
Impact on Reputation and Public Perception
Even organizations outside of the finance industry can benefit from having an ERM framework in place because doing so can help protect reputations while building valuable trust with stakeholders. More specifically, taking the time to design and implement an effective ERM framework demonstrates to stakeholders that the organization is committed to responsible risk management.
Likewise, ERM strategies can help organizations avoid scandals, crises, and costly legal liabilities that could damage their reputation by identifying and mitigating these risks before they arise.
Overcoming Common ERM Implementation Challenges
While there are many benefits to ERM implementation in organizations, this is not to say that enterprise risk management does not come with some potential obstacles and challenges.
There are several common challenges businesses may face when it comes to implementing ERM frameworks, beginning with a natural resistance to change. Transitioning to ERM can require a lot of change in terms of how business practices are carried out and how decisions are made. This may be met with some resistance among those who have been doing things another way for years.
Likewise, a lack of resources can make designing and implementing ERM challenging. Establishing an ERM framework requires a great deal of time and resources, including dedicated staffing and risk mitigation tools, that can add up to be quite costly. This is where it is essential for organizations to see ERM as an investment in their future success, even if it means spending some additional money for the resources they need up-front.
Finally, some organizations may face challenges not when it comes to identifying risks but quantifying them. This is where bringing in the right risk assessment and scenario planning tools can make all the difference, allowing decision-makers to envision the likelihood and impact of potential risks with ease.
Learn More With an M.L.S. Degree
As organizational and financial risks continue to lurk around every corner, savvy businesses need to stay on top of these potential hazards with a solid enterprise risk management plan. With this in mind, it is also likely that businesses will continue turning to risk management professionals who have a solid background in legal studies to design and implement ERM successfully.
Looking to advance your understanding of ERM frameworks and the legal/compliance issues surrounding them? If so, then it may be time to explore an online Master of Legal Studies program that will prepare you for this type of work.
The University of Miami School of Law is proud to offer an online Master of Legal Studies curriculum that allows students to enroll part- or full-time with flexible scheduling to suit their busy lives. Reach out to learn more or get started with your online application today.
Sources
https://admissions.law.miami.edu/academics/MLS/
https://admissions.law.miami.edu/academics/MLS/curriculum/
https://www.auditboard.com/blog/enterprise-risk-management/
https://www.metricstream.com/blog/top-5-erm-tools.html
