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Enterprise Risk Management for Large Scale Operations

August 25 2010

By having an enterprise risk management (ERM) plan means a company understands this critical area of business and has taken the appropriate steps to deal with it. A properly devised ERM plan will have the methods and process documented so that the risks can be managed in the most opportune way.

A company’s enterprise risk management plan should have certain components in its framework for it to be useful. This framework is a path to properly identifying all associated risks that could have any impact on the business. There should also be a way for the analysis to occur so all that is possible to be known about the risk is revealed.

Two other important parts of the enterprise risk management framework are how a company will respond to the identified risks and monitor them. The right response can be the difference in a risk being just an annoyance or a disastrous situation. Monitoring the risks is more than just being aware of them.

A company’s response to their enterprise risk management plan and its results is an important piece of the puzzle to solving the impact of each risk that is associated with their business. Since most of the identification and analysis of the risks that pose a problem are academic, the variable lies in the action that is taken with each risk.

How and to what degree the variables are handled is the meat of any enterprise risk management plan. The key to reducing the impact of negative influences of the risks associates with a business is the specific action taken in dealing with the risks. There are 4 basic ways to handle them.

The four ways of handling risks in any enterprise risk management plan are avoidance, reduction, sharing the impact or just plain accepting them.

The most common and beneficial is the reduction of the risk. This should be a large section in an enterprise risk management plan. Avoidance cannot always be achieved along with sharing the impact on other parts of the business might cause more harm than good. Acceptance is the second largest category when the costs of reducing the impact are greater than the benefits it will achieve.