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The Benefits of ERM
According to James Lam, author of the book “Enterprise Risk Management,” there are several primary benefits of using ERM; 1) enhanced organizational effectiveness, 2) increased efficiency in terms of risk reporting, 3) improved business performance.

Organizational effectiveness helps address special and specific risks by creating the top-down coordination needed to form an integrated team suited to handle both independent risks and interdependencies between risks. More-over, ERM has been said to increased risk management awareness allowing for more efficient operational and strategic decision making. This is done through the appointment of a chief risk officer and the establishment of an enterprise risk function.

Risk reporting assists both the chief risk officer of an organization and the board of governors in identifying key risk factors that may prove detrimental to the company in both the present and the future. Thus, ERM enables senior management to identify, measure, and limit to acceptable levels the net exposures faced by the firm. Being able to create risk transparency allows a firm to better hedge against those particular risks or avoid them all together.

Better business performance is yet another benefit of using ERM. Companies that adopt an ERM approach have seen improvements in areas requiring key management decisions from capitol allocations to product development and pricing to mergers and acquisitions. As a result, this leads to the benefits and improvements gained from utilizing an ERM approach can be seen in the form of loss reduction, improved shareholder value, decreased earning volatility, and an increase in the firms’ earnings.