Enterprise Risk Management
Enterprise Risk Management consists of methods and processes aimed to manage organizational risks and facilitate organizations to reach their objectives. ERM provides a framework to identify and assess events pertinent to organizational objective and monitor their impacts, develop strategy to respond and examine progress. This way, ERM protects business enterprises and create value for their stake holders.
Goals of an ERM program
Risk Functions
Corporations that implement ERM include a few key risk functions. These functions are:
COSO, the "Committee Of Sponsoring Organizations of the Treadway Commission" is a United States based nonprofit commission that was established in 1992. As defined by the COSO framework, ERM is ". a process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives." As per the COSO framework, ERM consists of five interrelated components and contains several key concepts.
Goals of an ERM program
In every organization, dedicated and specialized departments work to manage and mitigate various risks. As each risk function behaves differently than the other, ERM attempts to improve organization's capability and coordination to manage risk effectively. The enterprise risk management also integrates the output to present a unified picture of risk to the stakeholders.
Risk Functions
Corporations that implement ERM include a few key risk functions. These functions are:
- Developing Strategic planning - a process of classifying external risks and building up strategic initiatives to tackle them
- Monitoring Compliance & Ethics - process of monitoring compliance with code of conduct and directs fraud investigations
- Marketing - recognizing target customer to meet customer requirements with product/service
Various consulting firms offer suggestions for how to implement an ERM program. However, implementing ERM is a daunting task as it conflicts the organizational objectives. Now many companies are moving from silo-based approach to holistic approach for ERM implementation. Also, designing an appropriate model and getting support from top management to implement the model are equally intimidating.
COSO ERM framework
COSO, the "Committee Of Sponsoring Organizations of the Treadway Commission" is a United States based nonprofit commission that was established in 1992. As defined by the COSO framework, ERM is ". a process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives." As per the COSO framework, ERM consists of five interrelated components and contains several key concepts.
ISO 31000
Published by the International Organization for Standardization, ISO 31000 is a risk management standard. This standard was introduced to provide guidelines on risk management. ISO 31000 offers a risk management paradigm for practitioners and companies which is universally recognized and which replaces existing risk management standards and models which were subject to industry type and regions.
Riskability
The concept of risk management plays a role to identify the elements of risk prevention, and risk mitigation. This concept has the advantage of being applicable to both continuing events and to single events. Risks involve no legal consequences until the actual event occurs and heavy risk should not be allowed to happen without identification. On the other hand you need to take calculated risks.
The concept of risk management plays a role to identify the elements of risk prevention, and risk mitigation. This concept has the advantage of being applicable to both continuing events and to single events. Risks involve no legal consequences until the actual event occurs and heavy risk should not be allowed to happen without identification. On the other hand you need to take calculated risks.
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