Enterprise risk management strategy: 10 best practices for governance leaders
Enterprise risk management strategy: 10 best practices for governance leaders
According to the Diligent Institute's Director Confidence Index survey conducted in partnership with Corporate Board Member, 77% of directors report their boards are having regular conversations around new risks, with nearly half discussing ERM more frequently than in years past.
Yet directors rate their organization's ERM maturity at just 6.6 out of 10—slightly above average but far from the sophisticated oversight that transaction readiness and stakeholder expectations require.
The gap between board attention and program maturity creates real challenges for organizations navigating pre-IPO preparation, funding rounds or rapid growth. Bridging that gap depends on an enterprise risk management (ERM) strategy: understanding what ERM is and adopting a practical approach to implement it effectively.
For organizations, this means building risk infrastructure that satisfies board expectations and investor scrutiny. This comprehensive guide explains how to build an effective ERM strategy, covering:
- The role of strategy in ERM with practical examples
- Two proven approaches to ERM strategy development
- Ten key best practices for ERM excellence
- How AI-powered software strengthens your ERM strategy
- Answers to frequently asked questions about ERM strategy
What is an enterprise risk management strategy (ERM)?
An enterprise risk management strategy is a documented approach that defines how an organization will identify, assess, monitor and respond to risks across all business functions. It establishes the risk appetite, governance structure, accountability frameworks and processes that guide day-to-day risk decisions while supporting strategic objectives like transaction readiness, operational resilience or competitive differentiation.
Risk strategy forms the foundation of effective ERM by defining how organizations will approach, assess and respond to risk across all business functions. When leadership establishes a strategy to evaluate risk based on opportunity potential rather than just threat mitigation, they create an ERM framework that drives competitive advantage.
This strategic foundation determines every subsequent component of the ERM program. The frameworks, processes, technologies and governance structures that follow are tactical implementations of the overarching strategic direction.
Enterprise risk management strategy example
A well-crafted ERM strategy statement might read: "Maintain transaction readiness and operational resilience by monitoring the top 15 enterprise risks quarterly, ensuring SOX-compliant controls across revenue recognition and financial reporting and delivering board-level risk intelligence that demonstrates systematic oversight to investors and audit committees."
This statement establishes clear operational directives.
The risk team knows exactly what to monitor (top 15 enterprise risks), the governance cadence (quarterly reviews), regulatory requirements (SOX compliance in specific areas), and the business outcome (transaction readiness and investor confidence).
Every risk identification, assessment and mitigation activity can be evaluated against these specific parameters rather than vague performance goals.
For mid-market companies, this translates into building audit-ready processes, establishing board-level risk reporting with documented mitigation progress and demonstrating the systematic risk oversight that private equity firms and IPO underwriters expect during due diligence.
Two proven approaches to ERM strategy development
There are many different ways to structure an ERM strategy and just as many components that strategy can include.
Building an ERM framework can come down to the maturity of the ERM program, whether the organization uses ERM software, or simply the size of the organization and the resources it can reasonably dedicate to risk.
Two of the most common approaches are:
1. Three lines of defense approach
The IIA's evolved Three Lines Model emphasizes value creation alongside value protection through principles-based collaboration:
- First line: Operational management teams own and manage daily operational risks while implementing controls and monitoring procedures within their business functions.
- Second line: Risk management and compliance teams provide oversight, monitoring and facilitation while establishing policies and frameworks that support first-line activities.
- Third line: Internal audit delivers independent assurance on governance effectiveness and control adequacy while maintaining objectivity from operational and oversight activities.
This model works particularly well for organizations building formal ERM capabilities because it establishes clear accountability without creating bureaucratic silos.
2. Action-oriented approach
This framework helps organizations allocate limited resources more effectively by categorizing risks into four strategic responses:
- Tolerate: Accept risks with minimal oversight where impact and likelihood remain within acceptable thresholds.
- Monitor: Track risks requiring regular assessment but not immediate action, focusing on trend identification and threshold monitoring.
- Improve: Address risks requiring active mitigation through process changes, control enhancements or strategic adjustments.
- Operate: Manage ongoing risks through established procedures while continuously optimizing response effectiveness.
Growing companies often prefer this approach because it enables rapid decision-making about resource allocation while ensuring comprehensive risk coverage.
10 ERM strategy best practices for effective governance
Developing an ERM framework is essential, but those steps are only the beginning. Sustainable ERM performance starts with commitment at all levels and requires different people and practices to work together effectively.
To achieve this, organizations should:
1. Develop a unified risk vision across leadership levels
The board may see risk one way, the CEO may see it another way and the CFO may have yet another perspective. This creates competing priorities, which undermines effective ERM. Engage in strategic collaboration between the board, executives and management and recruit plenty of risk data to form a unified approach.
"What are the risks you want the board to be focused on?" asks Derek Vadala, Chief Risk Officer at Bitsight Technologies. "The board really wants to understand, 'What should they be worried about? What are you doing about it? How are we doing in that program?' It's hard to get to that conversation, which is key to establishing trust, because we start with bringing a lot of data and not showing what to focus on."
This unified vision becomes especially important during transaction preparation when investors scrutinize risk governance maturity.
2. Implement creative risk identification processes
Traditional risk management thinks more linearly about risk — for example, digital properties are at risk of hackers. But risk is constantly evolving, so organizations need to think as creatively as bad actors do.
Brainstorm as many risks as possible so you can form a response plan for any threat imaginable. Conduct monthly sessions with cross-functional teams, including scenario planning exercises that consider low-probability, high-impact events.
3. Design clear communication protocols
Effective ERM isn't privileged information. The more employees know about and understand the organization's approach to risk, the better. Develop a plan to communicate the initial ERM strategy, then have a second plan to quickly give notice in the event of a crisis so everyone knows how to proceed.
"Everyone has a role to play in risk management. You don't have to be a risk professional, you can be on a school board or in a nonprofit or a large corporation. It's something everyone should be doing, looking at the risks and the future," says Amanda Carty, Managing Director, Strategic Market Solutions at Diligent.
4. Establish specific roles and accountability frameworks
In addition to your communication plan, take the time to clearly define who is responsible for what. Aside from being crucial to vulnerability management, this ensures that no mission-critical tasks fall through the cracks and everyone knows what they're responsible for should a potential risk evolve into a tangible event.
For organizations implementing the three lines of defense model, this means documenting which teams own risk, which provide oversight and which offer independent assurance. Clear role definition prevents gaps in coverage and eliminates the assumption that "someone else" is managing critical risks.
5. Build adaptive response capabilities
ERM is supposed to be flexible. Yet many organizations struggle to adapt to risk. Don't be afraid to recategorize a risk or develop a new protocol. As with anything, change is the only constant in ERM.
Maurice L. Crescenzi, Jr., Industry Practice Leader at Moody's, emphasizes this approach: "Keep it practical. Keep the ERM program practically designed and not overly complex, through the entire lifecycle of the ERM process. High, medium, low are good enough. Keep your presentations to the board simple. Demonstrate practicality throughout the entire process."
Implement quarterly risk register reviews that evaluate both individual risks and overall program effectiveness. Additionally, empower risk teams to modify categories and responses without lengthy approval processes.
6. Establish continuous monitoring systems
Risks exist both during and outside of business hours. Organizations should get in the habit of continuous monitoring so that no critical events go undetected or unmitigated. Always-on also means tracking the progress of the program so risk teams can tighten practices that work and improve those that don't.
Deploy continuous monitoring systems that track risk indicators 24/7, implement automated alerting for threshold breaches and create response protocols that function during off-hours periods.
7. Leverage real-time data and analytics
There is no ERM without data. Some data helps detect risk (such as auditing financial statements), while others track how effective the ERM strategy is (such as the number of risks detected). Keep these metrics close to create reports that verify the program is on the right track.
However, nearly 60% of organizations still rely on spreadsheets and manual processes for risk management, according to a recent IIA report. This dependency on outdated methods prevents organizations from achieving the real-time visibility that boards and investors increasingly expect.
8. Establish benchmarking capabilities
Organizations operating in isolation lack context for evaluating whether their risk management approach is adequate. Benchmarking against industry peers provides critical validation that your risk identification is comprehensive and your mitigation strategies align with best practices.
For pre-IPO companies, demonstrating that your risk program benchmarks against public company standards proves particularly valuable during due diligence. Investors want assurance that you understand industry-specific risks and have implemented appropriate controls.
9. Integrate risk with strategic planning
ERM should inform strategic decisions rather than operating as a separate compliance function. Organizations that successfully integrate risk insights into strategic planning are more likely to outperform peers who measure ERM activities in isolation from business outcomes.
This integration means risk assessments should directly influence decisions about market expansion, product development, acquisition targets and resource allocation. When boards review strategic initiatives, risk implications should be a standard component of the discussion.
10. Build collaborative cross-functional processes
Risk doesn't respect departmental boundaries. Breaking down silos between risk, audit, compliance, and business functions requires intentional effort. Create cross-functional working groups, establish shared objectives and implement collaborative tools that make cooperation the path of least resistance.
Michael Rasmussen, CEO of GRC Report, highlights this need: "There needs to be collaboration between risk and the business, vertically up and down but then also horizontally across the organization. It is absolutely essential — collaboration across risk departments. The problem is there are silos. Risk and audit are interconnected and interdependent. Collaboration helps provide audit's perspective, their insight across company policies and procedures that help improve risk's function."
Improve your ERM infrastructure
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See Diligent in actionHow AI-powered software strengthens your ERM strategy
For companies building or maturing ERM programs, AI-powered platforms address the resource constraints and sophistication gaps that typically prevent organizations from implementing comprehensive risk management.
The technology transforms how companies approach the strategic challenges documented throughout this guide — from establishing a unified risk vision to enabling real-time monitoring.
Rapid deployment for transaction readiness
Diligent’s AI Risk Essentials enables organizations to kickstart ERM programs in under 7 days, addressing the time pressure that pre-IPO companies face when investors demand evidence of systematic risk management. AI-powered peer benchmarking identifies relevant risks from SEC 10K reports, eliminating the need to hire consultants or build risk registers from scratch.
For companies transitioning from spreadsheet-based risk tracking to professional ERM software, the platform provides the training tools, templates and unified workflows needed to demonstrate risk management maturity during funding rounds.
Comprehensive enterprise risk orchestration
For organizations ready to move beyond foundational ERM, Diligent ERM provides the centralized risk management and Moody's benchmarking data that mid-market companies need when building enterprise-grade capabilities. The platform addresses the challenge of consolidating multiple risk tools into a single source of truth for strategic and operational risk.
Risk-informed board reporting capabilities deliver executive dashboards and customizable templates that transform risk data into strategic intelligence boards can actually use.
The platform's AI-powered risk identification benchmarks against public company disclosures, showing investors the company understands industry-specific risks and has implemented controls that satisfy audit committee expectations. Real-time reporting through interactive dashboards and heat maps provides the always-on monitoring capabilities that contemporary risk management requires.
Unified governance infrastructure
The Diligent One Platform consolidates board management and governance, risk and compliance (GRC) activities into a single interface, eliminating the vendor management overhead that growing companies face when juggling separate tools for audit, risk and compliance.
Board-ready reporting templates help risk teams deliver focused insights rather than overwhelming directors with data. Integration with 100+ third-party systems creates the comprehensive risk visibility that boards need for effective oversight, while Diligent Market Intelligence data informs compensation and governance benchmarking discussions during transaction preparation.
These integrated capabilities enable companies to implement industry best practices without complexity or overwhelm. Organizations can establish a unified risk vision, enable real-time monitoring, facilitate cross-functional collaboration and integrate risk with strategic planning through a single platform rather than cobbling together disconnected point solutions.
Ready to build a comprehensive ERM strategy that adapts to regulatory changes while driving competitive advantage? Schedule a demo with Diligent today.
FAQs about ERM strategy
What is the difference between an ERM strategy and traditional risk management?
ERM strategy takes a holistic, enterprise-wide approach to risk management rather than addressing risks in departmental silos. Traditional risk management often focuses on specific areas like operational risk or compliance risk, while ERM strategy integrates risk identification, assessment and mitigation across the entire organization.
This means connecting board oversight, executive decision-making and operational execution into a unified risk framework that supports strategic objectives and transaction readiness.
How long does it take to implement an effective ERM strategy?
Implementation timelines vary based on organizational maturity and resource availability. Organizations starting from spreadsheet-based processes can establish foundational ERM infrastructure in 1-2 months using AI-powered platforms that provide templates and benchmarking data.
Building a comprehensive program with mature governance processes typically requires 6-12 months. However, pre-IPO companies often need to demonstrate ERM capabilities on compressed timelines to satisfy investor expectations, making technology-enabled rapid deployment approaches particularly valuable.
What are the most common mistakes organizations make when developing ERM strategy?
Common mistakes include:
- Overcomplicating frameworks with excessive detail that prevents practical implementation
- Failing to secure board and executive buy-in before launching programs
- Relying on manual processes that cannot scale with organizational growth.
Companies also frequently underestimate the importance of benchmarking against industry peers, which leaves them unable to demonstrate that their risk management approach meets investor expectations.
How do you measure the success of an ERM strategy?
Success measurement should focus on strategic outcomes rather than process completion. Key indicators include the percentage of strategic decisions informed by risk intelligence, time to identify and respond to emerging risks and reduction in risk-related incidents or losses.
Organizations should also track operational metrics like risks identified and mitigated, time to mitigation and percentage of risks with documented response plans. The most successful programs measure whether ERM enables business growth rather than simply documenting risk activities.
What role should the board play in ERM strategy?
The board provides strategic oversight and approves risk appetite while holding management accountable for execution. Effective boards establish clear expectations about what risk information they need, in what format and at what frequency. They should review and approve the overall ERM strategy, monitor significant risks and emerging threats, ensure adequate resources are allocated to risk management and evaluate whether the ERM program delivers value beyond compliance.
Ready to transform risk management into your competitive advantage? Book a demo to discover how Diligent helps companies build transaction-ready ERM programs.
