Risk is a constant element of business, and every organisation has to be aware of that. This means that risk management is no longer optional; it’s necessary. Enterprise Risk Management (ERM) is not only a way of mitigating potential losses, but it’s also a key tool for making strategic decisions and building a competitive advantage.
From digital transformation and regulatory changes to disruptions in global supply chains, companies face ever more complex challenges that shape the reality of doing business. Volatility brings risks, and these arise across multiple fronts. For example, advancing digitisation forces businesses to continuously adapt their strategies to new threats—such as cyberattacks or the challenges of process automation.
Meanwhile, unstable supply chains, changing legal requirements and unpredictable geopolitical events (for instance, international sanctions) can disrupt day-to-day operations. Enterprise Risk Management offers a holistic perspective on risk and enables effective management, which is essential in such a volatile environment.
What is Enterprise Risk Management?
Let’s start with the definition. Enterprise Risk Management (ERM) is a comprehensive approach to risk management that spans the entire organisation. The concept originated in the United States, where, in the 1980s, the financial sector began to emphasise a broader, more holistic view of risk. One that encompasses the context of the whole enterprise.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) played a crucial role. In 2004, they published the “Enterprise Risk Management – Integrated Framework”. This publication established risk management standards that still form the foundation of many practices utilised today. Unlike the older, more traditional approach to risk management, ERM integrates all aspects of a company’s operations—financial, operational, technological, legal, and strategic.
The key pillars of ERM include:
- Risk identification: pinpointing threats across all areas of operation.
- Risk analysis and assessment: estimating the potential impact and likelihood of incidents.
- Risk response: implementing actions to mitigate risks.
- Monitoring and reporting: regularly analyzing the changing environment and reporting to management.
Contemporary challenges: technology, compliance, and cybersecurity
Cloud migration and the rise of generative artificial intelligence (gen AI) are two significant trends creating new types of risks. Companies must protect their data and systems against unauthorised access and account for the unpredictability of algorithm-driven decisions. For those responsible for Enterprise Risk Management, this means implementing real-time monitoring mechanisms and adapting data governance and security policies accordingly. Organisations also need to adopt a more agile risk management strategy to respond quickly to emerging technological threats, making systematic monitoring and reporting within Enterprise Risk Management (ERM) even more critical.
European companies need to align with EU ESG requirements, such as the CSRD directive. The Corporate Sustainability Reporting Directive (CSRD) was adopted in 2022 and came into effect for large enterprises starting in 2024. It mandates reporting on ESG-related issues, including environmental impact, social responsibility, and corporate governance. Failing to comply with these regulations may damage the company’s reputation and lead to financial penalties. Organisations must recognise that ESG initiatives are not only a legal requirement but also a growing market expectation. One that will increasingly shape relationships with customers, investors, and business partners.
Companies with a global footprint face operational and geopolitical risks. Recent years have shown the severity of such disruptions—especially given how difficult they are to predict. The COVID-19 pandemic triggered global supply chain delays, particularly in sectors such as technology and automotive, where semiconductor shortages significantly impacted production. In 2021, the Ever Given container ship blocked the Suez Canal, resulting in an estimated $9.6 billion in daily global trade losses. The Russian aggression on Ukraine in 2022 exposed risks related to access to raw materials such as grain and gas, impacting the stability of many industries. Disruptions to raw material supplies, border closures, and armed conflicts affect entire supply chains, potentially leading to delays and substantial financial losses.
According to the ENISA Threat Landscape 2024 report, organisations failing a compliance audit reported a breach history in 84% of the cases, with 31% experiencing a breach in the previous 12 months. By contrast, organisations passing compliance audits had a breach history in 21% of the cases, with 3% reporting a breach in the previous 12 months. These threats can cripple operations, lead to data loss, and seriously damage a company’s reputation. Operational shutdowns caused by cyberattacks—particularly ransomware—have become one of the most frequent technological challenges faced by European businesses.
How modern GRC systems support ERM
GRC systems (Governance, Risk, Compliance) play a crucial role in supporting effective risk management. These solutions have evolved in response to the growing need for automation and centralisation of risk management processes in large organisations, where manual processes have proven insufficient due to the increasing volume of data and the emergence of new types of threats.
Implementing GRC systems enables companies to more effectively identify risks, respond to them, and report their status—an essential capability in an environment where risks are highly complex and occur with increasing frequency and diversity.
GRC solutions offer capabilities such as:
- Automated alerts about new risks and potential threats
- Centralised risk data management for better information oversight
- Regulatory-compliant reporting, which is especially important in light of CSRD and other legal obligations such as GDPR
Requirements for Implementing ERM
Implementing Enterprise Risk Management is a complex process that requires a multidimensional approach that involves the entire enterprise. The effectiveness of this process depends on several key factors that contribute to building a mature environment required to manage risks in line with the ERM approach:
- Executive engagement: as with any strategic initiative, successful ERM implementation starts at the top. Senior leadership must clearly define goals, allocate appropriate resources, and actively support the risk management strategy and its execution. A lack of executive commitment can undermine the entire initiative.
- Developing a mature organisational culture: there must be a shared understanding of the importance of risk management across the enterprise. This requires employee education at all levels so that risks can be identified and reported where they arise. Fostering a culture of transparency and accountability is critical.
- Using advanced analytical tools: modern technologies, such as GRC systems, enable real-time data collection, analysis, and reporting. Data quality plays a crucial role, as it impacts the accuracy of insights and the effectiveness of decision-making. These systems must ensure data integrity and consistency, along with capabilities for automated validation and cleansing. This allows organisations to identify trends and forecast potential threats with greater precision, enabling faster and more effective responses to emerging risks.
- Ongoing updates and reviews of risks: since the business environment is constantly evolving, risk management processes must be dynamic. A risk register is a central component of ERM, enabling systematic documentation, monitoring, and assessment of organisational risks. It should include detailed information on identified risks, their potential impact, likelihood, and planned mitigation actions. Regular reviews of the risk register help businesses quickly adapt to changing conditions and adjust their risk management strategies accordingly.
- Alignment with strategic goals: the risk management strategy should support the company’s long-term objectives. ERM must not be treated as a standalone process, but rather integrated into daily operations and strategic planning.
Enterprise Risk Management is not just about regulatory compliance—it is about building a resilient, future-proof organisation. Today, risk management is a foundational element of a successful, modern business. Companies that implement ERM effectively gain a competitive edge and are better positioned to navigate changing market conditions.
