What type of costs are best assessed through ERM processes?

Risk-related costs are best assessed through Enterprise Risk Management (ERM) processes because ERM is fundamentally focused on identifying, analyzing, and managing risks that could potentially affect an organization's ability to achieve its objectives. This approach allows businesses to measure and understand various risks, including operational, financial, strategic, and reputational risks, and their associated costs.

By incorporating risk-related costs into the ERM framework, organizations can prioritize their resources and strategies in a way that mitigates potential losses stemming from various risks. This can involve assessing the likelihood of risks materializing and the potential financial impact, enabling a comprehensive understanding of how risks might affect an organization’s overall performance.

In contrast, fixed operational costs, variable marketing costs, and administrative costs are more straightforward financial expenses that do not inherently involve the complexities of risk assessment, which is the core purpose of ERM. These costs are typically stable or predictable and do not require the same level of risk-based analysis that risk-related costs necessitate. Therefore, the focus of ERM processes on understanding and managing risk makes it particularly effective in assessing risk-related costs.