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ERM programs can help businesses improve their overall performance


SAN ANTONIO — Enterprise risk management programs don't just help organizations manage risks more effectively; a well-developed ERM program can help improve a businesses performance as well.

Speaking last week at the Risk & Insurance Management Society Inc.'s 2012 Enterprise Risk Management Conference in San Antonio, Brian D. Thelen, general auditor and chief risk officer for General Motors Co. in Detroit, said his company looks to its ERM program to give it a leg up on competitors.

“We want this to be a competitive advantage for us,” Mr. Thelen said. “We're not just looking at this as wanting to play defense. We want to play offense.”

Mr. Thelen said that when he came into his CRO role at GM, one of his priorities was to ensure that the company's risk management operation was providing a value-added benefit to the organization.

“What we're trying to do is make sure we're relevant,” Mr. Thelen said.

“The evolution of risk management goes through three stages from the traditional to the integrated to the enterprise risk management approach,” David T. Smith, divisional vice president, risk management, at Family Dollar Stores in Matthews, N.C., said during another session discussing proving ERM's value through objective measurement.

“In the integrated approach, the insurance piece, the risk transfer, just becomes a safety net. It's not primary like in the traditional approach,” Mr. Smith said. “The ERM process broadens the scope of risk management to address strategic and operational risk as well.”


On the same panel, Gary J. Bierc, CEO at rPM3 Solutions L.L.C. in Pasadena, Md., said expanding a total cost of risk approach into an enterprise total cost of risk calculation allows risk managers to effectively communicate the value of their ERM activities to their organizations' upper management.

“The environment we're living in today is far more rich in risk than the environment when our accounting systems were developed” long ago, Mr. Bierc said. “If you're going to be looking at cost of risk this way, you have to have a certain focus on risk and enterprise risk management,” Mr. Bierc said, considering cost of risk on the basis of a broad strategic view rather than a process-focused view.

Among other things, that might mean including business activities in an enterprise total cost of risk analysis that would not be considered part of a total cost of risk measurement, such as marketing expenditures or human resources costs, he said.

“Risk is the level of uncertainty around corporate performance,” Mr. Bierc said. “At the end of the day, we're all trying to drive performance at our companies. That's why we're doing this.”

As organizations craft ERM programs, it's essential that the programs fit their organizations' cultures, according to another group of speakers.

At accounting and advisory firm Eide Bailly L.L.P., the firm's partnership structure was among factors to be considered in moving toward ERM, said Mary Peter, the firm's Minneapolis-based director of enterprise risk management.

“Working with a partnership is much, much different than a corporation. You have lots of bosses,” Ms. Peter said. “And if they're not on the same page, you're going in a lot of different directions.”


To address those issues, it was essential to secure top-level support for the ERM effort and make sure the process of developing the program was cross-functional and strategy driven, Ms. Peter said.

At St. Paul, Minn.-based Affinity Plus Federal Credit Union, “The culture ... is very strongly based on our key stakeholder and the key stakeholder is the customer,” said David Seibert, Affinity Plus' risk management officer. At Affinity Plus, decision-making is kept close to the members, and the majority of the company's employees are empowered to make many decisions.

In that arrangement, Affinity Plus relies on few preventive controls and more on “detective” controls. The ERM program created had to embrace that detective control environment and the company's decentralization, while analyzing how much risk they create, Mr. Seibert said.

Restaurant chain Buffalo Wild Wings Inc.'s culture is marked largely by its rapid growth, so an ERM program imposing too much structure would never work, said Daniel Quandt, the company's Minneapolis-based director of internal audit.

Instead, the program focuses on goals and successes, and on getting people talking about risks rather than producing reports, he said. “We very much, as part of ERM, try to talk about our strategies and our initiatives and anything that stands in the way of our strategic initiatives is a risk.”

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