Value‐driven ERM: Making ERM an engine for simultaneous value creation and value protection

Abstract

Enterprise risk management (ERM) began as an effort to integrate the historically disparate silos of risk management in organizations. More recently, as recognition has grown of the need to cover the upside risks in value creation (financial and otherwise), organizations and practitioners have been searching for the means to do this. Existing tools such as heat maps and risk registers are not adequate for this task. Instead, a conceptually new value-driven framework is needed to realize the promise of enterprise-wide coverage of all risks, for both value protection and value creation. The methodology of decision analysis provides the means of capturing systemic, correlated, and value-creation risks on the same basis as value protection risks and has been integrated into the value-driven approach to ERM described in this article. Stanford Hospital and Clinics Risk Consulting and Strategic Decisions Group have been working to apply this value-driven ERM at Stanford University Medical Center.