In that situation, a silo owner might rationally make a decision to respond in a particular manner to a certain risk affecting his or her silo, but in doing so that response may trigger a significant risk in another part of the business. Limitation #3: Third, in a traditional approach to risk management, individual silo owners may not understand how an individual response to a particular risk might impact other aspects of a business. What the head of compliance doesnвЂ™t understand is that a key element of the strategic plan involves entering into joint venture partnerships with entities doing business in Brazil and Argentina, and the heads of strategic planning and operations are not aware of these proposed compliance regulations. Unfortunately, the head of compliance discounts these potential regulatory changes given the fact that the company currently only does business in North America and Europe. For example, the head of compliance may be aware of new proposed regulations that will apply to businesses operating in Brazil. A risk that seems relatively innocuous for one business unit, might actually have a significant cumulative effect on the organization if it were to occur and impact several business functions simultaneously. So, while a silo leader might recognize a potential risk, he or she may not realize the significance of that risk to other aspects of the business. Limitation #2: Some risks affect multiple silos in different ways. Unfortunately, this oversight may drastically impact the strategy of a retail organization that continues to look for real estate locations in outlying suburbs or more rural areas surrounding smaller cities.

For example, none of the silo leaders may be paying attention to demographic shifts occurring in the marketplace whereby population shifts towards large urban areas are happening at a faster pace than anticipated. As a result, a risk may be on the horizon that does not capture the attention of any of the silo leaders causing that risk to go unnoticed until it triggers a catastrophic risk event. Risks donвЂ™t follow managementвЂ™s organizational chart and, as a result, they can emerge anywhere in the business. Limitation #1: There may be risks that вЂњfall between the silosвЂќ that none of the silo leaders can see. LetвЂ™s explore a few of those limitations. While assigning functional subject matter experts responsibility for managing risks related to their business unit makes good sense, this traditional approach to risk management has limitations, which may mean there are significant risks on the horizon that may go undetected by management and that might affect the organization. Limitations with Traditional Approaches to Risk Management This traditional approach to risk management is often referred to as silo or stove-pipe risk management whereby each silo leader is responsible for managing risks within their silo as shown in Figure 1 below.ДЇigure 1 вЂ“ Traditional Approach to Risk Management Each of these functional leaders is charged with managing risks related to their key areas of responsibility. For example, the Chief Technology Officer (CTO) is responsible for managing risks related to the organizationвЂ™s information technology (IT) operations, the Treasurer is responsible for managing risks related to financing and cash flow, the Chief Operating Officer is responsible for managing production and distribution, and the Chief Marketing Officer is responsible for sales and customer relationships, and so on. Traditionally, organizations manage risks by placing responsibilities on business unit leaders to manage risks within their areas of responsibility. Instead, proponents of ERM are suggesting that there may be benefits from thinking differently about how the enterprise manages risks affecting the business. Calls for entities to embrace enterprise risk management arenвЂ™t suggesting that organizations havenвЂ™t been managing risks. So, if risk management is already occurring in these organizations, whatвЂ™s the point of вЂњenterprise risk managementвЂќ (also known as вЂњERMвЂќ)? LetвЂ™s Start by Looking at Traditional Risk ManagementД«usiness leaders manage risks as part of their day-to-day tasks as they have done for decades. In fact, most would say that managing risks is just a normal part of running a business. Leaders of organizations must manage risks in order for the entity to stay in business.

Risk engine integration