What characterizes an enterprise risk management (ERM) framework?

An enterprise risk management (ERM) framework is characterized by a structured approach to managing risks across the entire organization rather than in isolated silos. This holistic perspective allows organizations to identify, assess, and manage risks that could affect their ability to achieve strategic objectives. The framework emphasizes the importance of integrating risk management into the overall governance and decision-making processes, ensuring that all potential risks—whether operational, financial, strategic, or compliance-related—are considered in a coordinated manner.

By employing a structured approach, organizations can better understand risk interdependencies, prioritize risk mitigation efforts, and enhance communication about risks throughout all levels of the enterprise. This engagement fosters a risk-aware culture, promoting accountability and proactive risk management practices, which ultimately leads to more informed strategic planning and resource allocation.

In contrast to focusing only on financial risk or managing risks in an isolated manner, an ERM framework encompasses all types of risks faced by the organization. It also does not aim to eliminate all risks, as that would be impractical and counterproductive; instead, it seeks to understand and manage risks within the context of the organization’s objectives and risk appetite.