What is enterprise risk management (ERM)?

Enterprise Risk Management (ERM) is defined as a comprehensive strategy for managing risks across the entire organization, integrating risk management principles into all aspects of the business. This holistic approach ensures that risks are identified, assessed, and managed in alignment with the organization’s objectives and risk appetite.

ERM encompasses not just financial risks, but also operational, strategic, compliance, and reputational risks, allowing for a more complete understanding of the risk landscape. By considering risks in a unified manner, organizations can prioritize resources and make informed decisions to enhance their resilience and performance.

This contrasts with the other options, which are limited in scope. Focusing on departmental risks misses the broader view that ERM offers. An individual approach to financial risk management ignores other critical risk areas that ERM addresses. Additionally, outsourcing risk management tasks does not embody the proactive and integrated nature of ERM, which is about embedding risk management within the organizational culture rather than merely delegating it to external parties.