Several elements are required of successful ERM systems. Take a look at this video on Enterprise Risk Management, which offers an overview of ERM.Section five details some requirements of successful ERM’s. Choose and summarize two of these elements. Could one of these be more important than another?
Ch. 10 offers examples of probabilistic modeling. How does scenario planning at DuPont offer an example of a company becoming outward looking in managing supply chain risk?
Successful ERM Systems: Two Key Elements
In Section Five of the Enterprise Risk Management (ERM) video, two crucial elements for successful ERM systems are highlighted: strong risk governance and integration with strategy.
-
Strong Risk Governance: This element refers to the establishment of a clear risk management structure, often led by a Chief Risk Officer (CRO) and supported by the board of directors. It involves defining roles, responsibilities, and communication channels across the organization. Effective governance ensures that risk management is a priority at all levels and is not siloed within specific departments.
-
Integration with Strategy: ERM must be embedded in the strategic planning process. This means that risk assessments and forecasts inform key business decisions, and potential threats or opportunities are considered when setting corporate objectives. This alignment allows organizations to take calculated risks while maintaining long-term resilience.
Between these two, integration with strategy may be slightly more important. While governance provides the framework for accountability and oversight, integrating risk management into strategy ensures that risk awareness is proactive, rather than reactive. It directly influences the organization’s ability to navigate complex environments and make informed, agile decisions.
Scenario Planning at DuPont and Outward-Looking Risk Management
Chapter 10 of the text discusses probabilistic modeling and scenario planning, focusing on DuPont’s proactive risk management strategies. DuPont used scenario planning to evaluate potential disruptions to their supply chain, such as geopolitical instability, regulatory changes, or environmental events. This approach allowed them to anticipate external threats rather than merely respond to them.
By incorporating external factors into their risk assessments—such as political conditions in supplier regions or long-term climate trends—DuPont demonstrated an outward-looking mindset. They didn’t just analyze internal operations; they examined how broader global trends could impact their supply chain. This level of preparedness enhanced their agility and resilience, reducing vulnerability to unpredictable disruptions and positioning the company to make better strategic choices.