Almost every business implements risk management methods. However, while looking for the right strategy to manage risks, you will find 2 main options.- 

• Enterprise Risk Management  
• Traditional Risk Management 

It has been found that ERM is better than the traditional one. 

Most commonly, large companies with formal business functions prefer traditional risk management. The number of people involved in the process depends on the company size, risk philosophy, and other legal aspects. TRM is a standardised and backward-looking process.  

To define ERM, it is to be said that it is a methodology to analyse risks strategically from your organisation’s perspective. 

TRM targets insurable risks

The issue of non-insurable versus insurable risks is relevant to the TRM and ERM. In case of TRM, you will deal with risks covered by insurance. For instance, an employee got injured in slip-and-fall incidents in your workplace. Or, a fire breakout ruined your equipment. These are some common insurable risks. 

Insurance can protect you from the cost of these dangers. That is why you can use traditional risk management techniques only in these scenarios. 

On the contrary, the ERM framework not only focuses on these traditional dangers but also helps you identify non-insurable risks. For instance, a cyber attack that results in the loss of sensitive data is a non-insurable risk. 

TRM is effective only in risk aversion

TRM considers an issue not simply from the loss prevention perspective. It also focuses on the impact of the problem within a timeframe. It deals with something that has happened previously and will occur in the future. However, this management method does not control the potential for future risks. 

On the other hand, ERM has a goal to identify future occurrences of risks. You can relate the risks to your business plan. 

Proactive versus reactive- ERM versus TRM

TRM is reactive, and you can implement it after the manifestation of risks. It affects the company’s policy in the future. However, an Enterprise Risk Management Solution puts emphasis on the future and tries to anticipate events or situations that do not occur. So, an ERM framework involves a process of making ongoing and pre-emptive risk management. 

Conclusion

In the present competitive business environment, various risk operations should work together to control risks effectively. Still, traditional risk control methods have not lost their methods. But, several companies have invested in Enterprise Risk Management Services. It takes almost 1 to 4 years to establish an ERM component. With an ERM approach, you can identify the root-cause risks common to silos. So, look for the best companies that help you with ERM services and minimise the risk potential. 

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