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How can you effectively use ERM tools for financial performance monitoring?

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Financial management is a crucial skill for any organization, especially in uncertain and volatile times. One of the ways to enhance your financial performance and reduce risks is to use enterprise risk management (ERM) tools and techniques. ERM is a holistic approach to identifying, assessing, and managing the potential threats and opportunities that affect your strategic objectives and value creation. In this article, you will learn how to effectively use ERM tools for financial performance monitoring and improvement.

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Oluwasegun Agbekeye

Internal Control |Internal Audit| Risk and Compliance | Finance & Accounting | Corporate Governance | Information…

1 What are ERM tools and techniques?

ERM tools and techniques are methods and frameworks that help you to integrate risk management into your decision-making and planning processes. They enable you to align your risk appetite and tolerance with your goals, allocate resources efficiently, and optimize your returns. Some examples of ERM tools and techniques are risk registers, heat maps, risk dashboards, scenario analysis, stress testing, and key risk indicators.

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Oluwasegun Agbekeye

Internal Control |Internal Audit| Risk and Compliance | Finance & Accounting | Corporate Governance | Information Security Professional | Certified Network Marketer | Entrepreneur|
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Monitoring is an additional ERM technique. Continuous training of the relevant personnel and even the Board committee in charge will enhance their monitoring skills and competence.

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2 How to use risk registers and heat maps?

A risk register is a document that lists and describes the key risks that your organization faces, along with their likelihood, impact, and mitigation strategies. A heat map is a visual representation of the risk register, using colors and sizes to indicate the relative priority and severity of each risk. You can use these tools to monitor your financial performance by identifying the sources and drivers of your revenue, costs, cash flow, and profitability, and how they are affected by various risks. You can also use them to track the effectiveness of your risk responses and controls, and to communicate your risk profile to your stakeholders.

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Oluwasegun Agbekeye

Internal Control |Internal Audit| Risk and Compliance | Finance & Accounting | Corporate Governance | Information Security Professional | Certified Network Marketer | Entrepreneur|
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The heat map as a channel for communication to the Board Audit and Risk Committee is very effective and elicits relevant feedback and contributions from the committee who most times operate under a tight schedule and don't have enough time for deliberation. Presenting Risk registers to such a high-level committee seems not to be as effective and efficient.

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3 How to use risk dashboards and scenario analysis?

A risk dashboard is a tool that provides a summary and overview of your risk exposure and performance, using metrics, charts, and indicators. You can use it to monitor your financial performance by comparing your actual results with your targets and benchmarks, and by highlighting the deviations and trends that require your attention and action. A scenario analysis is a tool that helps you to explore the possible outcomes of different events and situations, and their implications for your financial performance. You can use it to test the resilience and robustness of your strategies and plans, and to identify the best and worst case scenarios.

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4 How to use stress testing and key risk indicators?

A stress testing is a tool that helps you to assess the impact of extreme and unlikely events on your financial performance and solvency. You can use it to evaluate the adequacy of your capital, liquidity, and contingency plans, and to identify the potential vulnerabilities and gaps in your risk management. A key risk indicator (KRI) is a metric that measures the level and direction of a specific risk or a group of risks. You can use it to monitor your financial performance by detecting the early warning signs and triggers of emerging risks, and by taking proactive and corrective actions.

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5 How to integrate ERM tools and techniques?

Using ERM tools and techniques for financial performance monitoring is not a one-time or isolated activity. It requires a continuous and consistent process that begins by defining your objectives and risk appetite, followed by identifying and assessing the risks, managing and controlling them, monitoring and reporting them, and finally reviewing and improving them. By following these steps, you can effectively use ERM tools to monitor your financial performance and improve it, thereby enhancing your value creation and competitive advantage.

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Oluwasegun Agbekeye

Internal Control |Internal Audit| Risk and Compliance | Finance & Accounting | Corporate Governance | Information Security Professional | Certified Network Marketer | Entrepreneur|
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We designed a Risk and Opportunity template for performance monitoring in our monthly/quarterly business review meeting. This template - a simple Excel one, later became a profitability-enhancing tool. Relevant stakeholders became involved in the business forecast review. It helped management members to review budgeted costs with alternatives in terms of opportunity-cost saving impact, and risk-cost increase impact, leading to an increase/decrease in the profit forecast. Budgeted figures of revenue and cost are subjected to risk and opportunity analysis.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you effectively use ERM tools for financial performance monitoring?

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1 What are ERM tools and techniques?

2 How to use risk registers and heat maps?

3 How to use risk dashboards and scenario analysis?

4 How to use stress testing and key risk indicators?

5 How to integrate ERM tools and techniques?

6 Here’s what else to consider

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