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How to Evaluate the Return on Investment for ERM?

How to Evaluate the Return on Investment for ERM?

Enterprise risk management software — or ERM — has gained an ever-increasing amount of popularity amongst companies in all industries and business sectors in recent years. Many point to the COVID-19 pandemic as the primary impetus for the rise of enterprise risk management software, alongside technologies such as the cloud, machine learning, artificial intelligence, and enterprise messaging, amongst others. 

ERM software allows companies to be more proactive with their risk management strategy, while simultaneously providing tools and assets that make risk mitigation responses far faster and more efficient. This effectively limits the damage and losses that can arise from an incident. But all of this may not be apparent to the business leaders, stakeholders, and other decision-makers who must approve an organization’s risk management proposal and/or budget. For this reason, a business may opt to evaluate return on investment, better known as ROI. 

How to Evaluate Return on Investment – Projected vs Actual Return on Investment

As you begin a return on investment evaluation, it’s important to understand the difference between projected or expected ROI and actual ROI. 

Some will need to provide a detailed overview of estimated or projected return on investment because they have yet to fully implement and deploy an enterprise risk management platform. This would also be necessary if you’ve yet to fully deploy associated risk mitigation initiatives or if employees have not completed user training on the new ERM software platform. The same would also be true if your business opted for a phased implementation that is not fully complete. For example, third-party integrations may have been delayed due to the lack of a publicly-accessible API. This would result in an extended development timeframe for the ERM platform’s implementation stage. 

Basically, if the ERM platform is not being used to its full potential and/or associated initiatives are not underway, then this must be taken into consideration during the ROI evaluation process. For these line items, you’ll need to come up with ROI estimates and projections. A best practice is to be conservative in estimations and projections, opting to underestimate rather than overestimate. 

Actual ROI figures are obviously ideal. Those who have already completed the ERM software implementation and deployment process will focus on actual ROI metrics (rather than projections and estimates). Just as with ROI estimates and projections, the evaluation of actual ROI data must include all related risk mitigation initiatives too. For example, let’s say your ERM platform includes security threat alerts and notifications. As a result of receiving a slew of alerts, your company developed new data handling security protocols and implemented new, more robust security measures for its data stores. This dramatically reduced the number of security investigation-related tasks that were sent to the company’s IT team. The net effect: reduced security-related costs for the IT department and elevated security measures to mitigate risk factors and vulnerabilities more effectively. These cost savings ought to be included in an ROI evaluation since they can be directly attributed to the ERM platform. 

The good news is that regardless of whether you use projected ROI data or actual ROI figures, the basic process for evaluating return on investment is more or less the same. 

Enterprise Risk Management ROI — How to Evaluate the Return on Investment for ERM Solutions

Evaluating ROI for enterprise risk management software platforms is relatively straightforward. It requires a comprehensive analysis of your business, its operations, and its risk management objectives. Then, you obtain (or estimate) the baseline and the new metrics for the corresponding income, expenditures, and dollar figures that are associated with ROI. You conclude by comparing these figures to determine the ERM platform’s impact on your company’s financials. 

Identify Processes and Costs 

Make a complete list of all the processes, systems, and staff who are impacted by the enterprise risk management software. This must include one-time costs and recurring expenses, including but not limited to the following. 

  • ERM platform development and deployment.
  • ERM software management.
  • ERM software maintenance and updates. 
  • Time and money associated with ERM-related staff training.
  • Processes and systems that are directly and indirectly impacted by ERM software, integrated third-party platforms, and related initiatives.

One example of an integrated third-party platform that’s directly impacted by a company’s new enterprise risk management software would be a business messaging mobile app. Your ERM software has identified this messaging app as an area of potential noncompliance — that’s a regulatory compliance liability. This fact has prompted your organization to switch to a new regulatory-compliant business messaging platform. Lots of positive changes ensued, effectively improving productivity, increasing profitability, and leading to a major bolster in ROI. This is exactly the type of anecdote that can make for a great business use case that proves ROI. 

Establishing a Baseline 

A baseline figure represents the expenditures, income, and other financials associated with an ERM platform before the implementation and deployment phase. As you evaluate the return on investment for ERM software solutions, you must draw a clear “before” and “after” line. The baseline is your “before” for all of the costs and expenses that were outlined above. 

Identifying the “After” Figures 

The “after” figures account for the aforementioned costs and expenses following the implementation and deployment of your ERM platform and related initiatives. Be sure to specify the same timeframe when pulling this data. For example, you don’t want to pull the past 2 months’ worth of data for instant messaging app costs, while pulling 3 months’ worth of data for expenditures on ERM software maintenance and updates. 

Determining the Differential to Determine Return on Investment for ERM

To evaluate ROI, you must determine the differential between the “before” and “after” figures. This is how you determine the return on investment for this kind of Digital Transformation project. 

It is not uncommon to realize that your enterprise risk management solution’s ROI is actually greater than expected as new areas of impact are identified. For example, you may fail to realize that a risk mitigation project affected a particular process or operations within a specific company division. This impact was initially unrealized and uncalculated as part of your initial ROI evaluation, leading to an underestimate. This anecdote illustrates why it’s important to re-evaluate ERM return on investment periodically as insights change and new information become available. 

Finding the Ideal Partner for an ERM Implementation and Deployment

If you’re evaluating the potential return on investment for an enterprise risk management software platform, your development, implementation, and deployment costs will account for a large part of the ROI equation. While it’s a one-time cost, it’s still a significant consideration. Therefore, it is best if you can perform this evaluation after you’ve selected the best ERM development company for your needs. 

At iTech, we specialize in risk management software platforms. We understand the complex challenges that our clients confront as they work to maintain regulatory compliance and stay competitive within their respective marketplaces — all while minimizing risk factors, threats, and vulnerabilities, while simultaneously maximizing the impact of their risk management efforts and risk mitigation initiatives. The iTech team develops innovative enterprise risk management solutions that generate a solid ROI for clients in all industries and business spaces. We invite you to reach out to the team at iTech today to discuss your company’s risk management strategy and related challenges today.