Five Years On

Picture source: www.valburysecurities.co.id

BY: PAUL ENGLE

INDUSTRIAL ENGINEER – Volume 45 Number 11

September 2008 changed the lives of most people in America. The bankruptcy of one investment bank, overloaded with faulty debt, nearly took down the global economy. People have moved on with their lives and may have suffered financial and career setbacks as well, and are looking for a better future.

Many management teams took this opportunity to implement fundamental changes that made their companies stronger. Companies sit on a pile of cash because most chief financial officials remember banks closing their lending windows at the depth of the downturn. The future may be harsh for companies with this condition as competitors steal their customers and markets with newer innovative approaches to solving customer problems.

To mitigate internal risks which management might be able to control, companies are adopting a holistic approach with Enterprise Risk Management. ERM aims to identify all risks to enterprise and implement effective controls to reduce risk. ERM focuses on four aspects: strategy, operations, financial controls and reporting, and compliance.

Strategic planning typically begins with a SWOT analysis – strengths, weaknesses, opportunities, and threats. The first two areas may be internal, but the last two typically involve external forces. The strategic business plan represents the tool for identifying the opportunities and risks and harnessing the enterprise’s resources to take advantage of them.

ERM adds a new dimension to the strategic business plan by forcing management to consider what controls, if any, might ameliorate risk when pursuing new opportunities.