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Regulatory governing bodies have a strategic and fiduciary responsibility to ensure risks are identified and mitigated. Designing and implementing an ERM plan is important because it allows for an early warning system, integrated infrastructure, and effective policies and procedures designed so that risk is addressed in a comprehensive integrated approach. In general, the recommended approach to governing and managing risk within an organization is to ensure that all people within the organization understand the nature of risk, the organization’s philosophy and approach to risk, and know what their responsibilities are with regard to reducing/mitigating risk.
The focus is therefore in four major organizational areas including:
- Developing an early warning system which prevents difficult and big surprises by systematically identifying, risk, assessing its potential impact, and prioritizing risks for mitigating action.
- Promoting organizational learning in risk mitigation.
- Taking action to manage the risks identified, and
- Monitoring results of risk management to reduce the likelihood of repeat problems, i.e. learning from and gaining wisdom from experience.
ERM integrated into the infrastructure of an organization prevents large mistakes from occurring or multiple misfortunes from occurring at once by:
In today’s work environment, change is so rapid and operating factors are so complex that a thorough risk management approach is a functional requirement for effective organizational leadership.