Question

Compare ERM to TRM. What are 3 similarities? What are 3 differences?

Answer 1

Enterprise risk management (ERM) and traditional risk management (TRM) are very similar. The two risks have similar processes but the scope of risk management is different for both.

The three main similarities are as follows:

1. ERM and TRM both approaches try to manage risks. They use methods for making, implementing and monitoring decisions that minimize any adverse risk to the organization.
2. ERM and TRM approaches use the same six steps of the risk management process. This includes identifying the risk, analyzing the risk, examine the feasibility of the risk management technique, selecting the appropriate technique, implement the selected technique. Lastly monitor the results, review and revise if required.
3. The two approaches are using processes to support the overall business objective to eliminate and minimize risks.

There are many differences between the two approaches but key differences are as follows:

1. TRM is fragmented and specific to a department or management unit. It has a departmentalized approach. Each function department manages its own risk. ERM has an integrated approach to managing risk. The senior management coordinates the risk management and each team member views risk management as a part of their job.
2. TRM is used on an adhoc basis and implemented as and when the manager foresees a risk. ERM is a continuous approach and is an integral part of the business.
3. TRM is narrowly focused to cover primarily insurable risks and financial risk. In contrast, the ERM approach covers all business risks and opportunities. ERM takes a broader view.

To conclude ERM is a more holistic approach and covers all risks faced by an organization. Traditional risk management is focused on the loss of exposure related to hazard risk. They focus on managing safety, purchase insurance and controlling financial recovery from losses generated from hazard risk.