By linking consolidation of risk to improved performance of the organization, value is created. By consolidating risks, organizations obtain information which allows to undertake evaluation, analysis and management of risk more effectively.
Enterprise risk management (ERM) establishes the foundation which improves decision making with regards to risk, return and growth. The foundation consists of assessment tools, common language, determined risk tolerances and strategies, all of which are encouraged by enterprise risk management.
ERM allows identifying internal and external best practices from which all enterprises can benefit. As a result of enterprise risk management, organizations better manage risk profiles (with the help of tools such as RAROC), reduce unacceptable risks, strategic errors and undertake more timely and adequate corrective actions.
Risk management strategies create value by trying to avoid unacceptable losses, encourage using the core competencies of an organization and managing variability of performance.
To achieve connection between risk management and enhanced performance of the enterprise, we need to measure how performance is affected by changes in the risk profile which occur due to the implementation of risk management strategies.