7 Secrets to Starting ERM Even When Ebenezer Scrooge Controls the Budget

90% of executives said they wanted to build an ERM process into their organizations; only 11% had completed the implementation. Several surveys over the last few years have described similar results.

Arguing against some form of risk management is like arguing against apple pie. And yet we all face budgetary constraints. Consider a unique and effective ERM approach that non multi billion dollar companies can consider without breaking their balance sheets.

1. Revisit your business model regularly. Understand the difference between sales, bookings, billings, cash collected, and revenue recognizable under accounting rules. Or just make a mistake where the taxing authorities let you pay taxes, but you do not get to recognize financial statement revenue.

2. Study appetite for risk and balancing for rewards (a) How risk tolerant are you, your board of directors, and your executive team? (b) How complete and accurate is the financial information you currently have to make the decision you are contemplating? (c) What is the worst-case scenario that can happen if you do or do not act? (d) How committed are you, your executive team, and your board of directors to executing the risk strategy? (e) What issues are potential doomsday scenarios for your company?

3. To ensure that business model stays on track, use a flash report or executive dashboard to track your top 5 to 7 business metrics.

4. Look for these 5 highlighted areas for improvement in almost every company (a) My business does not accurately know who its 10 most profitable customers are. (b) Occasionally my business capitalized expenses that created an asset with what now may be a questionable recorded value. (c) My company does not know how changes at one of our top 10 customers may affect our company bottom line. (d) My business has an asset it would be better off selling at a loss to free up cash to pursue a more promising opportunity. (e) My business paints an overly optimistic picture of our company to a customer, vendor, or financing source.

5. Stress test how well you can get crucial data on time! When a company does not distribute its Board Package at least 5 days before the meeting, there are larger problems lurking! And the bar is higher for public companies or those non public striving for public level governance.

6. Study the going green impact and perils for your company. (a) Using food and croplands for alternative fuels versus food production; (b) financing needs pressure on future liquidity and interest rates; (c) restricted access to transportation and delivery times; (d) rising electric costs; (e) oppressive level carbon tax while business may be precluded from passing those costs on to customers; (f) mammoth increase in complex unproven regulations, while foreign competitors do not have the same costs and restrictions; and (g) restricted access to water.

7. Just get started on ERM or improve it. The reason: Often companies want to start at too high a level of sophistication and quit because of the perceived challenges.

Unearth the hidden risks that could topple your company, so you can use Best Practices for Long-Term Business Health to increase the likelihood of reaching your long term personal and personal goals.

Again, the good news is that if you already have any of these systems in place (strategic planning, quarterly budgeting, risk management, operations review, entire enterprise risk management, risk assessment, process improvement, performance management, or contingency planning), you have foundation blocks to improve your risk management capabilities by using some of the steps above.

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Bottom line? What is the cost of what you do not know in your business? For more details, the book, Stick Out Your Balance Sheet and Cough: Best Practices for Long-Term Business Health is available for purchase at Amazon or visit www.fiscaldoctor.com From Gary W Patterson Copyright 2009

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