The importance of measuring ERM performance

In my experience I have found that a key challenge companies face is motivating various departments to adopt the ERM process. The root cause for this is often that ERM teams layer their processes and tools on top of the business, rather than integrating them into existing processes. A good example of this is risk mitigation planning. For illustration purposes consider the Customer Retention department. A VP of Retention has just confirmed her annual plan with Management, and has a list of initiatives that her department needs to accomplish this year. Human Resources has also confirmed her performance metrics and bonus structure based upon this annual plan.

A week later, the ERM team facilitates a risk assessment workshop that includes the risks related to Customer Retention objectives. The VP of Retention is asked to document a mitigation plan based upon the outcome of the workshop. ERM provides her a standalone ERM Mitigation Form. She completes the form and submits a copy to the ERM department. At the end of that year the VP of Retention successfully completes all initiatives in her annual plan and receives her bonus. The risk mitigation plan, which was not incorporated into her annual plan, remains incomplete. Not surprisingly, the VP of Retention focused on the initiatives upon which she is measured.

This inability to motivate participation in the ERM process is a very common situation. My advice for ERM teams is to work diligently with the Strategic Planning department to integrate risk mitigation plans into department leaders’ annual plans. This annual plan already contains the key initiatives that they need to complete, and risk mitigations are simply additional initiatives that require equal focus and attention.

Bottom line, people do what they are measured upon.