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Enterprise Risk Management
Main Street ERM
RIMS/IIA offering makes ERM knowledge accessible to all
By Michael J. Moody, MBA, ARM
Enterprise risk management (ERM) continues to gain the attention of corporate America. After noting several key risk management shortcomings during the recent economic crisis, most corporations are searching for an improved method for handling risk management. One of the approaches that has gotten significant attention is ERM, since its primary focus is to promote a holistic view of the corporation from a risk management standpoint.
While the ERM concept has been part of the risk management lexicon for about 10 years, it has been slow to gain acceptance by corporate America. Initially, banks began to develop a formal ERM methodology, and more recently the insurance sector has begun to embrace ERM. About the same time, most of the national debt-rating agencies began promoting the concept as a method of reducing insurers’ overall risk. Standard & Poor’s (S&P) was the most vocal about the positive attributes of ERM, but Moody’s and Finch also noted the positive influence of ERM, and each agency began to consider ERM in its rating matrixes. Soon after, A.M. Best also noted that ERM was being used as part of its overall insurer ratings.
Off to a slow start
Despite this positive acceptance by the rating agencies, ERM has had a difficult time gaining wide acceptance. While there are a number of reasons for this slow start, one of the most frequently cited speed bumps has been the lack of a universally accepted approach to ERM. Subsequently, a number of frameworks have been advanced; most recently, the ISO published its ISO 31000 Standard, which has received positive comments from many.
Still, for the most part, acceptance by the broad risk management community has not occurred. However, recently, the Risk and Insurance Management Society (RIMS), in conjunction with the Insurance Institute of America (IIA), has developed a new approach to ERM education. In essence, IIA has introduced a new course that will fill a void in ERM education.
For years, IIA has provided critical insurance and risk management educational offerings on a variety of topics. They offer classes for everything from basic insurance fundamentals to more advanced aspects of insurance underwriting. In addition, the institute also has provided a formal risk management program that was made up of three courses:
• ARM 54 — Risk Management
• ARM 55 — Risk Control
• ARM 56 — Risk Finance
Completion of the three courses leads to an Associate in Risk Management (ARM) designation. The ARM has been one of the few true risk management educational programs available to corporate risk managers and, as a result, has become the de facto credential for the risk management profession. While the actual content has changed changed periodically, the ARM courses have remained pretty much as originally envisioned by Dr. George Head.
Several years ago, however, the IIA expanded the designation by offering a new course, Risk Management for Public Entities, which carries the course number of RMPE 352. When RMPE 352 is completed, along with ARM 54, 55, and 56, it leads to an Associate in Risk Management for Public Entities (ARM-P).
Moving along a similar track
IIA has taken a similar approach. The new course, titled “Enterprise-Wide Risk Management: Developing and Implementing,” carries the IIA course number of ARM 57. After completion of this course, along with ARM 54, 55 and 56, the participant will earn the Associate in Risk Management-ERM (ARM-E) designation. And a number of students currently are working toward that goal.
A review of the course manual for ARM 57 will quickly show that it provides a wealth of information on ERM. According to IIA, the bottom- line benefits to ARM 57 are:
• Prepare your organization to meet rating agency requirements with practical tools to help you initiate and implement a strategic ERM program,
• Empower your organization to make better informed business decisions and optimize its risk taking by aligning ERM with strategic goals,
• Position the ERM program for success by learning how to coach risk owners regarding implementation responsibilities and processes
• Communicate and consult more effectively with critical stakeholders by sharing internationally recognized ERM guidelines.
As was noted previously, in order to provide a relevant ERM course, the IIA teamed up with RIMS to gain access to a broader risk management audience. The work was spearheaded through the Institute’s new Center for the Advancement of Risk Management Education (CARME). IIA notes that the ARM 57 course will provide basic ERM information to practitioners with strong risk management and business backgrounds. “This new advanced ERM curriculum focuses on how to optimize risk-taking to meet strategic goals and practical steps to develop and implement an ERM program.”
As the course is currently designed, the main learning experience takes place in an intensive three-day course that is conducted by RIMS; however, the participants are strongly urged “to complete the self-study component before attending the course.” The class will provide attendees with the opportunity to work with trained instructors and follow risk managers to learn how to best implement ERM within their organizations. IIA also points out that the class “will provide networking opportunities, hands-on experience with an ERM toolkit and valuable preparation for the ARM-E designation exam.”
The ARM 57 course has been designed to provide a comprehensive view of ERM. Among the more important topics that are addressed are: What is ERM, and how do you develop a strategy for implementation approach? In order to accomplish this, the course compares and contrasts traditional risk management and ERM. An additional key concept presented in this portion of the course work is an understanding and estimate of the value creation aspects of risk management. This section also includes important information on risk assessment and how to determine an appropriate level of risk tolerance for any organization.
Integrating risk management and organizational strategy is the second major section. Included among its important features is managing reputational risk as well as other intangible assets. This section also provides an overview of the governance, risk management and compliance triangle. Also dealt with here is the very critical topic of corporate culture and how it impacts ERM. Finally, a review of the various risk reduction and risk finance options are also provided.
The final section gets to the heart of the matter—building a business case for ERM. Included here are discussions regarding communications and consultations with critical stakeholders. Additional information is provided regarding the audit function and self-assessment. Finally, an in-depth case study is provided for the participants to analyze and discuss.
Conclusion
Both RIMS and IIA have realized that ERM is the future of risk management. RIMS has pointed out, “The spotlight on risk management practices shines brighter than ever before.” And it goes go on to note that ARM 57, “the advanced ERM course, and the ARM-E designation will give risk practitioners the tools and skills to raise the bar on ERM within their businesses.” Together RIMS and IIA have developed an excellent addition to the ERM educational offerings. Anyone interested in learning more about ERM, or wishing to add to their ERM credentials, should consider taking the new ARM 57 course and getting the ARM-E designation. As they point out, “The ERM program will enable seasoned risk management professionals to successfully integrate a functional ERM culture into their existing organizational culture.”
The author
Michael J. Moody, MBA, ARM, is the managing director of Strategic Risk Financing, Inc. (SuRF). The primary goal of SuRF is to actively promote the concept of enterprise risk management by providing current, objective information about the concept, the structures being used, and the players involved.
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