What is an ERM System: A Complete Guide

Despite the increasing complexity and volume of corporate risks, only 31% of senior finance leaders report having complete ERM processes in place. Think of an enterprise risk management system as a smart way to view risks from every angle and understand how they might impact your business.

However, while ERM adoption in the USA has increased from 9% to 34%, nearly 64% of executives believe that their organization’s ERM is still not equipped to provide a strategic advantage in mitigating risks.
A solid ERM system isn't just about avoiding risks—it's about turning potential threats into opportunities for growth and making your business more resilient.

This article will explore how a comprehensive enterprise risk program can enhance risk visibility to safeguard an organization's long-term success. We will also highlight how Aclaimant can help you transform your enterprise risk management strategy.

So, what is an ERM system?

An Enterprise Risk Management (ERM) system is a structured and strategic approach designed to identify, assess, prioritize, and manage risks that could impede an organization's ability to achieve its objectives.

With an ERM system, you're not just managing risks in silos; you're creating a comprehensive framework that touches every part of your organization. This system integrates risk management into the core strategic planning processes, helping organizations align their risk management strategies with their overall business goals.
Unlike traditional risk management, which often focuses on specific risks within individual departments, ERM considers the interconnectedness of risks across all areas of the organization.

By doing so, it enables businesses to understand how risks in one area can impact others and allows for a coordinated, organization-wide response to mitigate or prepare for those risks.

An ERM system integrates risk management into an organization's strategic framework, enabling proactive measures to manage potential risks. Through continuous monitoring and adaptation, it ensures that organizations remain resilient in the face of evolving challenges.

9 key components that make a good ERM system

ERM is a holistic approach that involves the entire organization in identifying, assessing, and managing risks. It consists of nine interrelated components that collectively enhance the effectiveness of the ERM framework.

These components include:

1. Building the right internal culture and environment

The internal environment sets the tone for how risk is viewed and addressed within the organization. It encompasses the organization's risk management philosophy, risk appetite, integrity, ethical values, and overall risk culture. A strong internal environment is crucial as it influences how employees at all levels approach and manage risks.

2. Setting clear and aligned objectives

Clear objectives must be established at various levels within the organization to effectively identify and assess risks. These objectives should be aligned with the organization's mission and vision and consistent with its risk appetite. Setting clear objectives helps ensure that risk management strategies support the broader organizational goals.

3. Spotting potential risks early on

Often referred to as "event identification," this component involves pinpointing potential events—both risks and opportunities—that could impact the achievement of the organization’s objectives. These risks may arise from internal or external sources and must be identified early to mitigate their impact effectively.

4. Assessing and measuring risks effectively

Risk assessment is a cornerstone of corporate risk management, guiding your preparedness and response strategies. This process involves analyzing identified risks to understand their potential impact and likelihood, thereby enabling the organization to prioritize these risks.

The goal is to determine the most appropriate risk management strategy. This component is critical because it provides the data and insights needed to make informed decisions about which risks require immediate attention and resources​.

5. Crafting smart responses to manage risks

Risk response, also known as risk mitigation, involves developing actions to address risks based on the organization's risk tolerance and appetite.

This component is strategic and requires a calculated approach to mitigate potential threats while still advancing the organization's objectives. It's akin to a chess game where each move must be carefully planned to minimize risks while optimizing opportunities.

The chosen response could involve avoiding, reducing, sharing, or accepting the risk, depending on the specific circumstances and the organization's strategic goals​.

6. Putting control activities in place to keep things on track

These are the internal mechanisms that an organization establishes to ensure that its risk management strategies are effectively implemented and monitored.

These controls act as safety nets, designed to detect and correct any deviations from the desired risk management approach.

This component is vital for maintaining the integrity of the ERM system, as it helps ensure that any out-of-tolerance activities are promptly identified and addressed, thereby safeguarding the organization against potential risks​.

7. Ensuring smooth information flow and communication

Building an ERM framework is a collaborative effort, much like a symphony where every musician must play in harmony. Effective communication of objectives and strategies across the organization is vital for achieving alignment and ensuring that everyone understands their role in risk management.

This component ensures that relevant risk information is communicated in a timely manner to all necessary stakeholders, fostering an environment where risk management is a shared responsibility​.

8. Keeping up with risk reporting and monitoring

Establishing clear formats and assigning responsibility for risk reporting are essential for maintaining transparency and oversight.

In many organizations, particularly larger ones, the audit function typically assumes this accountability. This component ensures that risks are continually monitored and that the effectiveness of risk management strategies is regularly reviewed. Ongoing risk reporting and monitoring help identify emerging risks and adjust strategies as needed​​.

9. Strengthening risk governance to stay resilient

Effective risk governance is akin to fine-tuning an instrument—it requires ongoing refinement to maintain harmony.
This component involves continuously updating and improving the ERM framework by incorporating lessons learned and adjusting controls and governance processes. Strong risk governance ensures that the enterprise risk management model remains adaptive and resilient, capable of responding to new challenges and maintaining the organization’s overall risk posture​.

Trillium Staffing’s success story with an ERM system

Trillium is a staffing service focused on providing a workforce across various industries, including construction, transportation, light industrial, and manufacturing.

The following case study illustrates how Trillium Staffing successfully digitized its risk management processes using Aclaimant's platform, significantly enhancing efficiency, collaboration, and data management across its operations.

• Founded in 1984
• Industry - Staffing (Construction, Transportation, Light Industrial, Manufacturing)
• Revenue - $300 Million
• Employees - 350+ across over 90 locations

This shift didn't just make Trillium’s risk management more efficient; it set a new benchmark for collaboration and showed just how powerful digitization can be in high-risk industries.

Essential ERM frameworks you should know

ERM frameworks offer structured guidelines that help organizations effectively identify, assess, and manage risks, enabling them to make informed decisions and achieve their objectives while minimizing potential losses.

Below are some of the most widely recognized ERM frameworks:

ISO 31000 for Risk Management

Developed by the International Organization for Standardization (ISO), ISO 31000 provides a set of principles, a framework, and a process for managing risks applicable to any organization, regardless of size or sector.

The standard emphasizes a holistic approach, integrating risk management into strategic planning and decision-making processes. The key components include:

• Clause 3: Principles of risk management.
• Clause 4: Framework for integrating risk management into organizational processes.
• Clause 5: Process for identifying, assessing, and mitigating risks​.

NIST Risk Management Framework (RMF)

Developed by the National Institute of Standards and Technology (NIST), this framework is designed to manage information security and privacy risks, particularly within the context of federal information systems.

The NIST RMF provides a structured and repeatable process for risk management, emphasizing confidentiality, integrity, and availability of data and systems. It supports organizations in establishing and maintaining robust risk management programs.

COSO Enterprise Risk Management (ERM) Framework

Developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), this framework provides comprehensive guidance on identifying, assessing, and managing risks.

COSO’s ERM framework is particularly strong in corporate governance and strategic alignment, focusing on how risk management can support organizational objectives.

The framework includes five key components:

• Control Environment
• Risk Assessment
• Control Activities
• Information and Communication
• Monitoring​​

British Standard BS 31100: Risk Management—Code of Practice

This framework, developed by the British Standards Institution (BSI), provides guidance for implementing and maintaining effective risk management processes.

It is designed to help organizations systematically identify, assess, respond to, and monitor risks, thereby supporting better decision-making and the achievement of organizational objectives​.

Each of these frameworks offers unique strengths and is widely used across different sectors, depending on the specific needs and contexts of the organizations adopting them.

8 tips to get the most out of your ERM system

Implementing an effective enterprise risk management strategy involves several key steps that are adaptable to an organization’s specific needs and risk landscape. Here are the best practices:

1. Identify the risks that matter most to your business

Begin by thoroughly understanding the potential risks your organization faces, including internal and external risks across operational, financial, legal, and compliance areas. Conduct a comprehensive risk assessment to identify and prioritize these risks based on their likelihood and potential impact​.

2. Create an action plan that works for your team

Once risks are identified, create a detailed action plan outlining strategies to mitigate or manage each risk. This plan should include specific actions, timelines, and assigned responsibilities to ensure accountability and effective execution​​.

3. Make the most of technology in your ERM process

Integrating technology into your ERM process is crucial for efficiency. ERM software can centralize risk data, provide real-time insights, and support automated monitoring and reporting.

Aclaimant’s customizable platform offers a robust solution that integrates seamlessly with existing processes, driving better adoption without data loss.

4. Set up a risk appetite framework that fits your goals

Develop a risk appetite framework to align your organization’s strategic objectives with its risk tolerance levels. This framework guides decision-making processes, ensuring that risks are managed consistently across the enterprise​.

5. Keep communication clear and consistent across the board

Clear communication channels and protocols are vital for promptly and accurately disseminating risk information. This ensures that all stakeholders, from employees to external parties, are informed and aligned with the ERM strategy​.

6. Assign responsibilities to the right people

Clearly define roles and responsibilities for risk management activities. Establishing a risk management committee or designating risk owners ensures that there is accountability and coordination in managing risks​.

7. Stay flexible and ready to adapt to changes

Your ERM framework should be adaptable to changing risk landscapes. Regularly review and update your risk assessment and mitigation strategies to address emerging risks effectively.

8. Keep an eye on how your ERM strategy is performing

Implement robust monitoring and reporting mechanisms to track the effectiveness of your ERM program. Regular assessment of key risk indicators and a continuous review of risk mitigation strategies will enable you to make informed decisions and drive ongoing improvement.

This is what to look for in an effective ERM software

When selecting an ERM platform, it's essential to ensure the software has the following attributes to effectively manage risks and enhance decision-making:

Aclaimant’s enterprise risk management solution excels in all these key areas, offering a user-friendly interface, seamless integration with existing systems, and robust analytics that provide deep insights into your risk landscape.

Its customizable features ensure that the platform adapts to your specific needs, all while remaining cost-effective and compliant with regulatory standards.

By choosing Aclaimant, you're investing in a comprehensive, data-driven risk management information system designed to enhance your organization’s resilience and performance.

Enterprise Risk Management is a necessity

Implementing a robust ERM system is no longer a luxury—it's a necessity for organizations aiming to thrive in today's complex business landscape.

At its core, effective risk management is about making smart decisions that fit with your organization’s goals and how much risk you're willing to take. By embracing ERM, you're not just protecting your business; you're positioning it for sustainable growth and success.

At Aclaimant, we're passionate about helping businesses like yours transform risk into opportunity. Our customizable platform seamlessly integrates with your existing processes, providing real-time insights and fostering collaboration across your organization.

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