Managing Enterprise Risk and Compliance

Management is facing higher expectations than ever before and comes with a job description that requires a multi-faceted work strategy. In the modern work environment, Chief Procurement Officers are often tasked with understanding their suppliers and their risks while managing a procurement team of individuals with their own needs and working methods.

Procurement professionals are particularly under pressure since a greater emphasis is being placed on the C-suite to plan for long-term sustainability, risk management, and impact on society. Procurement leaders are further tasked with ensuring supplier adherence.

The fact remains that shouldering the responsibility is necessary, as the risks keep mounting, all of which can have lasting effects on an organization’s operational efficiency and compliance. Further, it is no longer feasible to take the old route of just focusing on keeping ahead of such risks. Instead, we are now seeing the need to take it further: Procurement leadership must hone their skills to reach beyond and step into new territory – managing, mitigating, accepting, or transferring these risks.

What Exactly Is ERM?

ERM – Enterprise Risk Management – is key to keeping an organization running smoothly and mitigating potential risk at all levels. Why is it of such pivotal importance? And how can you master it as a procurement professional today? In layperson’s terms, it is the act of an organization adopting a comprehensive and measured approach to identifying, addressing, and managing risks.

The objective of ERM is to develop and execute a process that enables an organization to minimize and ideally eliminate risks posed so that a company can operate safely and smoothly. When classifying ERM as comprehensive, it should be interpreted as meaning that this approach to risk management adopts an enterprise-wide outlook that encompasses all affecting factors.

To further convey the importance of the holistic nature of ERM, the heart of the matter is to ensure that most of the responsibility of risk isn’t imposed upon one department or team. Instead, leadership is tasked with ensuring that they adequately assess their entire crew, enabling them to set the appropriate expectations that will be executable – and sustainable- long-term.

This management style is an abrupt change from the more traditional approach to risk management we have seen before, where risks are managed separately instead of in an integrated way. This is often known as the silo approach.

This silo-styled approach was problematic for many reasons, the most major of which is that it found departments beleaguered and inundated with risk management demands with no integration across the business to lighten the load or cooperate in banded forces for actionable and sustainable solutions.

On top of this, so many risks are posed today (operational, financial, strategic, etc.) that each risk does not fit into such narrowly defined silos. This is problematic because some departmental teams may be able to tackle certain risks without an issue that others may find unmanageable—and without organization-wide and consistent communication, as witnessed in ERM, it can prove catastrophic.

Further Merits of ERM

ERM seeks to address and solve these fundamental flaws found in the outdated silo approach to risk management by simplifying things. Modern ERM systems will be focused on simplifying C-suite leadership, paving the way for clearer, more confident decision-making by streamlining and consolidating risk reporting. This will also allow for improved and easier identification of the main risks to an organization.

ERM will not only identify these risks, but it can also quantify and manage them more effectively, adopting and initiating the proper protocols for the reduction of every threat. More benefits of ERM include greater productivity, improved customer relationships, and greater compliance oversight.

As for the supply chain, procurement professionals will be glad to know that a cutting-edge ERM initiative will vastly improve operations at every level. Allowing you to better plan inventory based on forecasted demand via accurate, real-time data, reducing total costs of operation, improving incomes, and beyond.

ERM specifically enables cost savings by aiding organizations in avoiding potentially devastating business disruptions and becoming a powerful tool for accounting when it comes to auditing.

The Experts Weigh In

Experts from all areas agree on the merits of ERM. Here is a quote taken from Al Decker -- American businessperson and engineer who served as the chairman of the board of Black & Decker. In his book Enterprise Risk Management - Straight to the Point: An Implementation Guide Function by Function, Decker reiterated the importance of the holistic approach through his assertion that: “Enterprise Risk Management (ERM) involves viewing risk holistically and horizontally across an organization. Both insurable and non-insurable risks are identified across all facets and disciplines of an entity, with the objective to eliminate, ameliorate or transfer such risks—or prepare to accept them.”

Another piece of wisdom comes directly from Naved Abdali, author of INVESTING - Hopes, Hypes, & Heartbreaks and Manager of Financial Reporting at Tangerine Bank in Canada, who challenges business owners to take matters into their own hands when facing risk. Abdali encourages, “Don’t be fearful of risks. Understand them, and manage and minimize them to an acceptable level.”

Taking Action, Made Easy

This article may have made ERM sound complicated and time-consuming to implement. Still, the good news is that if you are looking to up your risk management game and usher in 2023 with an ERM program poised to propel you toward your goals, we have found an integrated software platform that can help.

It’s called Workday, and it promises to revolutionize the way you do business. A platform that makes it easy for business users to engage and align with one another across the entire enterprise via self-service technology, Workday offers a collaborative, cloud-based solution that provides greater visibility throughout the whole sourcing and supplier engagement process, and more, making it an essential element to any ERM program.

You can learn more about Workday, schedule a quick demo, and get started today. After all, risks won’t wait.