Why might enterprise risk estimates be lower than decentralized estimates?

Enterprise risk estimates generally take a comprehensive view of the organization as a whole, which contributes to their accuracy in reflecting the overall risk profile. By incorporating a wider array of risk factors and potential impacts across different business units, these estimates provide a more holistic understanding of risks, including how risks interact with one another within the organization.

This broader perspective allows for the identification and assessment of risks that a decentralized approach, which typically focuses on individual business units, might overlook. Decentralized estimates often reflect a narrower focus, assessing risks only within a specific context or business area. Consequently, they can miss the benefits of collective insights that an enterprise-wide approach provides, leading to a more conservative or lower risk estimate in enterprise risk evaluations.

While historical data and individual business unit perspectives are certainly important, they do not encompass the entire spectrum of risks that might be present throughout the organization. Therefore, the enterprise risk estimates' incorporation of a wider range of risk mitigation strategies indeed plays a crucial role in potentially lowering those estimates relative to more fragmented approaches.