Enterprise risk management (ERM) software is transforming the way companies perceive, deal with and predict risks within their businesses. Just like any customer relationship or project management system, ERM software is becoming a vital asset – and for good reason.
Despite this, building a business case for implementing an ERM system is often a challenge. Understandably, senior management and members of boards want to know the tangible effect it will have on the return on investment (ROI).
Quantifying the ROI for any business investment is tricky, but ERM systems offer three compelling benefits and measurable outcomes that make it easier to digest. There’s the obvious: risk reduction (with ERM software, organizations have far greater visibility of risk), but also the benefit offered from a strategic perspective in enabling safer expansion of the business and more informed decision making.
However, in this post, we’re going to focus on the third and less obvious benefit of ERM software: the improvements in efficiency.
Let’s look at some examples of efficiency improvements that can be fueled by ERM software:
- Event approval
For certain events to be approved, detailed risk assessments need to be carried out. Without an ERM system in place, approval processes can be long and drawn out, eating up expensive employee and contractor time.
Employees may shun risk escalation if the process for doing do is cumbersome. Enterprise risk management software opens channels of communication that encourage the escalation of risk, thus ensuring it is cut off at source, rather than left to fester.
Risk isn’t always easily identifiable, but ERM software can aid with that process, across the entire business estate. Better identification of risk will result in fewer incidents – it’s that simple.
Reversing and preventing risk is of paramount importance. The quicker it can happen, the less of an impact EH&S incidents will have on the operation – and, consequently, overheads – of a business.
- Reviews and updates
The ability to take a holistic approach to risk management with ERM software enables the review of risk and incidents to be far more efficient. New strategies can be devised and updates made to policy that mitigate future risk.
The improvements above are all, essentially, faster action management processes and benefit every area of the business. Reviewing their ROI is therefore relatively straightforward, because the effect they have on day-to-day operations and employee satisfaction quickly become apparent.
ERM software is also capable of reducing the effort required for taking action with compliance management – a common thorn in the side of businesses. Imagine having greater control over the following:
- Data aggregation
- Control assessments
- Control association
The time saved and reduction in guesswork would be welcomed by anyone tasked with risk assessment and management. The latter, in particular, benefits significantly from ERM software by gaining a platform from which to better oversee risk evaluation, analysis, identification and monitoring.
Calculating the cost savings of ERM software
To better understand the ROI offered by ERM software, one must calculate the cost savings of the efficiency improvements it enables.
The most common way of doing this is to multiply the hours saved by each ERM function by the hourly wage of the worker tasked with performing that function. It doesn’t stop there, though – cost savings will also be found in the avoidance of external audits, assessments and staff increases.
In 2010, The Professional Risk Managers’ International Association (PRMIA) found that risk managers devote an average of 62% of their time to tactical activities, rather than those of the strategic variety. If they work a forty hour week, that means they’re spending twenty-four hours of their week collecting reports and reviewing data. That’s neither efficient, nor a good use of company resource.
Look at those hours wasted in cold, hard monetary terms (let’s say the risk manager earns $100K per year), and businesses operating without ERM software are paying an awful lot for staff to indulge in complex, manual risk management.
Such time would be far better spent mitigating risk by developing strategies for areas of high risk. With ERM software providing the actionable data and insight, staff members can do just that. And, when you consider that such systems typically only require an initial investment of around $30,000, contrasting that against the cost of wasted staff time neatly illustrates how fantastic the ROI can be.
Learn more about ERM software and how it can quantify ROI in our whitepaper, How to Quantify the ROI of Enterprise Risk Management.