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3 Major Differences Between Integrated and Enterprise Risk Management

<strong>3 Major Differences Between Integrated and Enterprise Risk Management</strong>

Modern businesses understand that they operate in a high-risk environment. When it comes to identifying and managing the various risks that these businesses face, integrated risk management (IRM) and enterprise risk management (ERM) are the go-to strategies for most organizations. And while these risk management strategies are somewhat similar, there are significant yet subtle differences between them. This post will discuss the three major differences between IRM and ERM. 

Why Enterprise Risk Management Matters 

Enterprise risk management (ERM) refers to an organization's approach to identifying and addressing potential events that present risks to the achievement of strategic goals/objectives or to opportunities to gain a competitive edge. In other words, ERM is the policies, framework, and practices that govern how an organization handles the different risks it faces. ERM is important because it increases organizational resilience by helping prevent your organization from incurring losses or unforeseen negative outcomes—it allows you to review your strategic business goals and the risks associated with those objectives. 

Why Integrated Risk Management Matters 

According to Gartner, integrated risk management (IRM) refers to a set of processes and practices, supported by enabling technologies and a risk-aware culture, that enhance performance and decision-making through an integrated view of how efficiently an organization manages the risks it faces. Simply put, IRM is a risk management approach that integrates organization-wide risk activities to help drive better decision-making by management teams. IRM is important for organizations for several reasons, including lowering the cost of compliance, reducing fraud and remediation costs, lowering reputation damage risks, and helping organizations recover from unforeseen disasters. 

How to Create an Integrated Risk Management Process 

In today's world, the volume and complexity of risks have made it challenging for organizations to make sound decisions when it comes to preventing and managing risks. That said, an integrated risk management process can ensure that your organization has a sound strategy for evaluating, controlling, monitoring, and managing risks. 

To create a successful risk management process, you need to follow these steps: 

  • Define your objectives 
  • Clearly define and document the roles and responsibilities of everyone involved in risk management 
  • Create the requisite guidelines for risk management 
  • Identify and evaluate all strategic risks 
  • Allocate resources at the operational level 
  • Monitor the IRM process and continuously review the outcomes 

When creating your IRM process, ensure you conduct extensive research, get insights from everyone on your team and establish clear and effective communication channels. 

What Are the Major Differences Between ERM and IRM? 

ERM and IRM are strategies for evaluating risks within an organization. However, while they share some similarities, such as both approaches providing a holistic model for managing operations and IT risk, these approaches to risk management are different. Here's a look at the three major differences between them: 

1. Focus 

ERM focuses on reviewing your strategic business decisions and the risks your technologies pose to those strategic decisions. For instance, a retail business might own a website that offers information about its products but predominantly focuses on sales in its physical store. If the retail business wants to grow its customer base, it also needs to start selling its products online. ERM means identifying new risks that arise due to change, including new information technology compliance requirements, selecting a vendor, and managing a vendor. 

On the other hand, IRM specifically focuses on analyzing the risks inherent in your business technologies. Based on the above example, IRM means reviewing specific technologies, such as tag management systems or ecommerce systems that a retailer integrates with their website for payment purposes and customer tracking, and the way the new technology affects the technologies the retailer currently uses. The integration between the various technologies the business uses is part of IRM. 

2. Scope 

ERM is a risk management approach used to identify, analyze, and manage risk exposure areas in an organization. Instead of delegating risk management to various departments within an organization, ERM considers the entire organization. An ERM team evaluates strategic business goals/objectives as part of its mission, identifying any risks that different technology may pose to an organization. For instance, suppose you are a service company that provides services to financial institutions; you may realize that manufacturers can also use your product. However, these two industries may have different logistic and cybersecurity needs. As such, when scaling your business with ERM, you will need to look at the risks associated with the various components of your organization (e.g., financial, strategic, and operational risks). 

IRM is a comprehensive risk management approach that identifies, analyzes, responds to, and reports the underlying risks within an organization's technologies and systems. Unlike ERM, IRM focuses on an organization's inherent security vulnerabilities to enhance risk visibility and decision-making. IRM prioritizes a risk-aware culture, resulting in cross-functional risk visibility and better regulatory compliance. It acknowledges that each organization has its own unique risk tolerance, thereby allowing for a risk management strategy that is better tailored to your organization. 

3. Nature 

ERM entails strategic, high-level risk management, which includes various functions and involves executives and boards. This basically means that board members, executives, and the various departments in an organization are involved when creating and implementing an ERM plan. This risk management approach is ideal for large organizations, given that the technology used to implement it can be costly and time-intensive. 

Conversely, IRM entails the hands-on work that makes it possible to implement an ERM strategy: the different technical controls vital to sound and effective cybersecurity, such as network monitoring, security monitoring, and perimeter protection. IRM framework is a good fit for small and medium-sized businesses because of its ease of implementation and cost-efficacy. 

Wrapping Up 

Risk is a crucial part of conducting business. Organizations of all sizes are increasingly turning to the cloud and digital technologies to support their operations. ERM and IRM are vital when it comes to risk management, protection of sensitive data, compliance, and governance, within and outside your organization. The risk management approach you choose will depend on your organization's specific needs and unique situation.