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How to develop a fail-safe strategy.

Say “risk management” to the executives of a publicly traded midsize company, and the conversation will likely turn to financial disclosure rules such as the Sarbanes-Oxley Act. This preoccupation with compliance often prevents companies from considering more serious risks that can undermine corporate performance, says Pamella Easley, ERM Practice Director in RSM McGladrey’s risk management practice.

“In most cases, about 70% of total organizational risk goes under-managed because companies don’t look beyond financial compliance,” says Easley. Companies today, both large and small, need to consider the full range of barriers to their success. Known as Enterprise Risk Management, this approach includes not just compliance but also strategic, operational, legal, and technology risks. Easley says ERM can help companies:

• See risk as strategic. Corporate success is more likely when risk management practices are fully aligned with strategic company goals. By evaluating both the dangers and rewards, companies can decide which risks are worth taking.
• Understand their appetite for risk. Some companies like to push the envelope, while others are more comfortable sticking to known markets and products. Understanding tolerance for risk is a major factor in developing successful long-term corporate plans. 
• Identify risks earlier. By understanding the relationships among risk factors, management can address potential problems instead of being undermined by them.
• Make risk a company-wide concern. When all employees are included in the conversation, it’s easier to deal with the ripple effects from problems like supplier delays, liquidity issues or interest rate fluctuations.