Best Practices and Standards 

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The Dos and Don’ts of Enterprise Risk Management

By Steven Minsky, CEO and Founder, LogicManager Inc. , 03/13/2006

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Today, this is a bad decision on many levels:

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1. Homegrown systems are costly to build and maintain where software companies can spread the development and market research costs across dozens of customers. JPMorgan Chase, which has created its own internal enterprise risk management system, indicated to GARP members that while the system is successful, JPMorgan Chase employs 55 development and support personnel full time to maintain it. Multi-million dollar annual maintenance expenses may be something that a giant like JPMorgan Chase can absorb, but for most firms it is unacceptable.
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2. Enterprise risk management technology is evolving at a rapid pace. Solutions developed internally meet specific functionality, however become quickly outdated as needs change. Solutions developed internally are often too geared toward compliance and audit and not focused on delivering business value. ERM solutions must meet the needs of the folks who directly manage the largest source of risk in the organization. Get line managers involved in the software selection and use rather than development and administration.





DO invest in innovative enterprise risk management technology. New tools coming to market provide risk managers with the robust analytical capabilities they need, while at the same time are intuitive and easy enough to facilitate communication between multiple layers in the organization. They enable business managers to understand risk and performance in the context of business operations, and allow senior management to understand the risk management strategy with solid business case assessments.

Enterprise Risk Management software must manage the complexity for an ERM program and have the following characteristics:

1) Root Cause: A framework that gets to the cause of issues makes follow-up straight forward and logical.

2) Motivation: Functionality to help line managers achieve process improvements to reduce costs, bottlenecks, and unnecessary risk translates into their embracing risk management.

3) Process driven: Selecting the most relevant 30 to 50 key risk indicators for each core business process from thousands of possibilities.

4) Reporting: Features to deliver insightful analysis with interactive dashboards to drill down or cut across silos to identify cross-functional risk.

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