Why Pursue an Enterprise Risk Management (ERM) Program?
September 12, 2019
Stakeholders are increasingly evaluating their schools, colleges, and universities based on the success of their institutional planning and risk management. Parents, alumni, and campus communities expect their institutions to protect their students and faculty. School boards and accreditors are mandating a holistic approach to risk management to ensure that institutions deliver a high-quality education.
And yet, when we poll K-12 schools and higher education institutions, the overwhelming response is that many of them feel unprepared to tackle major reputational threats. Most do not have an established risk management process that seeks to get ahead of potential crises.
- Recent surveys showed that 79% of higher ed institutions reported incidents that they considered a major reputational threat in the last three years, but more than half (54%) do not believe they have the ability to withstand such events.
- Further, only 43% of independent schools include risk management in their strategic planning documents, while just 15% indicated that they maintain a list noting the risks most critical to mission success.
An Institution-Wide Approach to Risk Management
For some time, the corporate world and some large nonprofits have engaged in a holistic form of risk management known as Enterprise Risk Management (ERM) to prevent and prepare for incidents that cause reputational, financial, strategic, or other damage to the organization. ERM engages senior leaders across departments to break down silos and proactively address such institutional risk.
Over time, this approach made its way to the education sector. Examples of institutional risks in education include a serial sexual predator on staff, a major cyber breach, non-compliant employee management practices, or the mismanagement of athletic injuries.
Benefits of ERM
Schools that establish an ERM process are better positioned to endure because they:
- Minimize critical vulnerabilities. Education continues to face big pressures, including changing demographics, increased public distrust, reduced government funding, and heightened awareness of social issues, such as sexual abuse and discrimination. Institutions with ERM programs report the ability to better recognize and manage reputational risk as compared to their peers, in addition to a greater peace of mind. They also report managing major reputational events internally, unknown to the public.
- Make better strategic decisions. ERM defines risk as uncertainty, not just something bad to protect against. It allows your institution to proactively evaluate trade-offs between the upside and downside of strategic decisions, so you can ensure that pursuits align appropriately with mission. You can confidently innovate, for example, by adding new programs, merging or partnering with other institutions, or pursuing new research efforts. You can move forward faster and smarter and be prepared for any headwinds.
- Improve overall institutional performance. Corporations with established ERM programs report increased shareholder value and better access to credit relative to their peers. In education, ERM can help institutions find value by eliminating redundancies in budgets, raising the visibility of key issues early, and streamlining initiatives.
Holistic risk management is essential to thriving in this changing and challenging environment. Every university or school should have an ERM program in some form or fashion.
The Four Steps of the ERM Process
Three Keys to a Successful Enterprise Risk Management (ERM) Strategy