Private equity firm implements sustainable enterprise risk management (ERM) program

Client background and need

Enterprise risk management (ERM) programs can provide private equity (PE) firms with an approach for managing business risk of its operating companies. When PE firms invest in operating companies, they are seeking to maximize the company’s value and position it for future buyers. Buyers consider many factors when determining whether to purchase a company – how a company manages risk to achieve its target level of performance can be one considerable focus area. If a company has an immature or non-existent ERM program, it may adversely affect a company’s value. Therefore, PE firms expect that their portfolio companies develop and implement ERM programs to support the identification, assessment and management of the unique risks to which they are exposed.

Our client sought help in creating a sustainable ERM program that was relevant to its business operations, structured in a practical manner and implemented efficiently. Areas of focus for the ERM program included: ERM education, program governance, risk identification and assessment, risk response planning and implementation, presentation of top risks to the board and executive leadership, and technology enablement.

Baker Tilly's solution-driven approach

ERM is the process of identifying and addressing methodically the potential events that represent risks to the achievement of strategic objectives, or to opportunities to gain competitive advantage [1].  

A team of Baker Tilly ERM subject matter specialists embedded with company management to assist in implementing a sustainable ERM program. Focus was placed on establishing risk proportionate governance through the implementation of roles, responsibilities and activities for all the organization’s risk stewards, educating the board, executive leadership and management on ERM fundamentals, incorporating ESG material issues and building risk management capabilities, competency and knowledge.

Our team’s approach also included:

• establishing a risk governance framework, risk taxonomy and risk appetite statement,
• developing policies and procedures for conducting the risk assessment,
• establishing risk metrics, risk / issue response and escalation and decision-making,
• establishing risk tolerance,
• identifying risk sponsors, managers and specialty groups for the company’s top risks,
• implementing a transformative ERM technology platform,
• and establishing a continuous quality assessment plan for the company’s ERM program.

Results achieved

The ERM program implementation helped the company develop a sustainable approach to identify, evaluate and prioritize risks and opportunities that may impact the company’s strategic goals and objectives. Our support also enabled the company to establish shared visibility and access to risk-related information to enhance decision-making across the organization. To do so, key performances indicators were developed and aligned with the company’s top risks, which optimized risk management and oversight by the board, senior management, ERM leaders and the internal audit function. Finally, a roadmap for future program enhancement was established, focusing on three core elements:

1. embedding data analytics to support the timely identification of new and emerging risks,
2. driving toward a more dynamic and continuous risk assessment and risk monitoring process,
3. and leveraging assurance mapping to reduce time required to assess risks that are covered by other risk stewards.

Learn more

Because private equity firms can significantly benefit from investing in the implementation of ERM programs for their portfolio companies, Baker Tilly designed an approach for educating portfolio company boards and senior executives on ERM leading practices and monitoring program implementation and maturity.

[1] ERM definition as provided by the American Institute of Certified Public Accountants (AICPA).