Enterprise Risk Management

Enterprise Risk Management:

It is a comprehensive and strategic approach in identifying, assessing and monitoring all types of risk an organization might face. It encompasses various risk factors, financial, operational, strategic, reputational factors. Its primary goal is to make informed decision making and enhance the ability of an organization to achieve its goal. It considers internal as well as external risk so it can be considered to be holistic.

Key Components:

  1. Risk Identification

  2. Risk assessment

  3. Risk mitigation

  4. Risk Monitoring

  5. Integration with strategy

  6. Culture and governance

  7. Regulatory Compliance

  8. Technology and data

  9. Business continuity and disaster recovery

  10. Reevaluation and Improvement

Risk of ERM:

  1. Implementation challenges

  2. Cost

  3. Data and information challenge

  4. Change management

  5. Overemphasis of compliance

Opportunities of ERM:

  1. Risk reduction

  2. Strategic and objective planning

  3. Competative advantage

  4. Cost saving

  5. Opportunity identification

  6. Shareholders confidence

  7. Resource allocation

Loss Forecasting:

It is a process of predicting the potential loss an organization might face in future due to various risks such as market volatility, operational factors, natural disastes etc. Keys:

  1. Identifying and Assessing Risks

  2. Data collection and analysis

  3. Risk Models

  4. Scenario analysis

  5. Stress testing

  6. Experts judgement

  7. Regulatory compliance

  8. Mitigation strategy

  9. Monitoring and Control

Financial analysis in ERM:

  1. Risk Assessment

  2. Risk Identification

  3. Quantify risk

  4. Capital allocation

  5. Cost-benefit analysis

  6. Return on investment

Other:

  1. Scenario Analysis

  2. Stress testing

  3. Decision Tree

  4. Benching

  5. Technological strategy

  6. Risk Assessment

COSO

Committie of sponsering organization of Treading commitee is a private sector organization that framework and give guidance on ERM, Internal Control and fraud deterrence.

COSO integated frame work

  1. control enviroment

  2. risk assesment

  3. control activities

  4. information and communication

  5. monitoring

COSO in ERM:

  1. culture and governance

  2. performance

  3. information communication and reporting

  4. monitoring

  5. reviewing

  6. strategic objective setting

Benefits:

  1. Internal control

  2. better corporate governance

  3. Compliance and regulation

  4. Cost saving

  5. shareholder confidence

  6. risk management and mitigation

  7. competitive advantage

Limitation:

  1. complexity

  2. one-size-fit all approach

  3. focus on control activities

  4. over emphasis on documents

  5. resistance to change

  6. no gurantee of success

CRO (chief risk officer)

Roles:

  1. Strategic analysis

  2. technology and data experties

  3. cyber security and data privacy

  4. climate and ESG risk

  5. regulatory compliance

  6. supply chain and global risks

  7. crisis management

  8. board and shareholder communication