ABSTRACT
This chapter introduces a new information aggregation method for enterprise risk management (ERM) developed from frontline employees’ sensing and predictions of uncertainties in the firm’s operational performance. Conventional enterprise risk management integrates the use of quantitative techniques based on historical data to provide effective deployment of common proactive risk practices throughout the firm. Yet, uncertainties are associated with events that cannot be easily predicted. Frontline employees acquire deep insights about operational uncertainties as they perform daily tasks and interact with internal and external stakeholders. Such experiential learning provides unique insights about operational uncertainties of strategic value, which are not otherwise available for proactive risk-taking by senior management. Drawing on a proactive risk-taking perspective, the chapter presents the relevance of sensing and leading predictions by frontline employees for capturing operational uncertainties. It presents the reader with the different steps of constructing an operational risk barometer (ORB) and provides a discussion of its use in practice. It outlines the implications of using sensing among frontline employees and other relevant stakeholders as a useful operational risk predictor and as an important information source in proactive risk-taking and dynamic strategic risk control processes.
