Enterprise Risk Management (ERM) has shot into prominence in recent years and judging by the results of the recent Nexia Australia risk survey, it is now considered an essential element in the governance framework of non-government schools across Australia.

As such, understanding core ERM principles is also becoming an essential skill set for school governors, principals, executives and board members.

So What Is Enterprise Risk Management?

In very simple terms ERM is a methodology that assists board members, principals and executive managers to predict future events, which may impact (positively or negatively) on their school’s activities and allows them to take appropriate actions to address the impact of these events.

Unlike traditional risk management approaches, which tend to have been managed through silos (e.g. safety, finance, insurable risk), ERM draws together risks across the whole of an enterprise, allowing directors and officers to make decisions based on the highest quality financial and non-financial information.

If you have a moment, re-read the preceding two paragraphs and think about them for another second or two.

If all managers could in fact effectively predict future events and prepare their schools for the impact of these events, the prospects of a school actually achieving its desired strategic goals and objectives would increase exponentially.

That is why schools that are effectively practicing ERM are gaining significant competitive advantages, and the individuals driving these ERM programs at ground level are finding themselves in increasing demand.

Sounds good! If we practice ERM what benefits can we expect to gain?

Schools that embrace Enterprise Risk Management and effectively implement an integrated ERM Program, can expect to experience some (if not all) of the following benefits:

• Significant increase in the likelihood of achieving strategic goals and objectives.
• Avoidance of “fire fighting” as reactive management gives way to proactive decision making.
• Enhanced ability to identify and manage future threats and opportunities.
• Enhanced ability to comply with legal and regulatory obligations.
• Avoidance of adverse risk events, or at least minimisation of the impact if these events are to occur.
• Establishment of a reliable basis for decision making and planning as key non-financial information becomes readily accessible by management and school governors alike.
• Improvement of operational effectiveness, business processes and controls.
• The ability to allocate internal resources more effectively.
• Minimisation of business complexity and optimisation of transparency.
• Enhanced reputation management.
• Increased shareholder/stakeholder value.

Is this another fad or is ERM here to stay?

For anyone who has been exposed to concepts such as Total Quality Management and Process Re-Engineering this question is more than reasonable. Surely this is just another fad that will go the way of the yo-yo.

Well…uh...no. That is not going to happen. The reason is, that unlike other management methodologies, ERM (or at least risk management) has been picked up by law-makers around the country. For executives working in financial services, ASX listed entities, government departments and many parts of the Not-For-Profit sector, ERM is a core operational requirement.

And don’t forget that risk management is at the very heart of Australia’s new Work Health & Safety laws, which means that in practical terms there are very few organisations in Australia that are not currently being touched by the risk management bug in some way.

In Western Australia, the Non-Government School Registration Standards 2013 contain a specific obligation that a “governing body should maintain appropriate oversight to prevent the taking of unacceptable risks”. The standards specify that “this should include audits to identify risks and regular reporting of critical and other relevant incidents, to provide reasonable assurance that identified risks are being managed and duties and obligations are being met”.

Whilst ERM is not an explicit obligation for non-government schools in every state and territory, it is quite clear that there is a general trend within the education sector to embrace continuous improvement processes and that ERM, compliance and incident management programs are considered to be central components of such processes.