The Convergence of Enterprise Risk Management and Enterprise Performance Management

May 17, 2023
Season 4, Episode 18

In this episode of the Business Excelleration® Podcast, a discussion of the convergence of enterprise risk management and enterprise performance management, and how companies are evolving their enterprise risk management capabilities. With Senior Director Shawn Fitzgerald, Principal and EPM Advisory North American Practice Leader Sherri Liao and Director, EPM, Business Intelligence and Finance Advisory Kimberly Myers Dennis.

Welcome to The Hackett Group’s “Business Excelleration® Podcast,” where week after week we hear from experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to world-class performance. This episode is hosted by Shawn Fitzgerald, senior research director at The Hackett Group. Today’s episode will discuss the convergence of enterprise risk management (ERM) and enterprise performance management (EPM), and how companies are evolving their capabilities in these areas. He is joined by Sherri Liao, principal, EPM & BI Advisory practice leader at The Hackett Group, and Kimberly Myers Dennis, director of Finance Executive Advisory Practice EMEA.

To begin, Sherri explains that risk management is evolving and becoming an integral part of EPM in today’s business climate. With ongoing geopolitical uncertainty, supply chain challenges and inflation, finance is being asked to navigate and bring in the context of these factors when discussing performance. Risk assessment is now being incorporated early on and into how businesses model their landing, and to explain what can be done differently to change the impact or trajectory of results. It is crucial to incorporate these aspects of discussion into explaining performance as a partner in supporting different business stakeholders.

Then, Kimberly states that companies are incorporating risk into their EPM processes by starting with strategic planning and incorporating risk into scenario modeling over a five-year basis. Finance is encouraging its board of directors to have strong oversight of risks and partnering with the ERM team to focus on analyzing risks that may have a material impact on the business. In forecasting, key risk indicators are incorporated. While in annual planning, the focus is on management commitment, key performance indicators, and care considerations.

Finally, Sherri and Kimberly highlight several categories of risk that companies should consider when assessing their performance. These include supply disruption, inflation, shifts in consumer preferences, reputational risk and cybersecurity. Sherri also notes that fluctuations in rates and interest rates are impacting investment decisions and capital allocation. She emphasizes the importance of thoroughly modeling these risks and tracking their impact through different planned events to understand the frequency of conversations required to manage them effectively.

Kimberly adds that companies should also consider temporal risks, such as the impact of a protracted pandemic, which may not have been modeled in the past. She stresses the need to incorporate these new risks into the EPM cycle and ensure that they are consistently incorporated at every stage – from strategic plans to annual plans and forecasts. They both highlight that top performers consistently look at these risk categories and model them across their EPM cycle, which is a key differentiator in managing risk and explaining performance.

Time stamps:

  • 01:45 – How is risk management evolving or becoming part of enterprise performance management?
  • 03:23 – How companies are incorporating risk into their enterprise performance management processes.
  • 05:26 – What categories of risk should companies really look at and why?
  • 10:02 – How you should model the risks in the context of business process management.
  • 11:20 – Good examples or case studies of people and organizations that are doing a great job at incorporating risk management into their enterprise performance management processes.
  • 16:36 – The research that people should look at to learn more on ERM.