Scribd
Upload
25 views

or "Enterprise Risk and Assurance Management" - What Is ERM?

Enterprise risk management (ERM) takes a holistic view of identifying and managing risks across an organization. It aims to maximize shareholder value by considering how various risks interconnect and impact the entire firm. Key components of ERM include identifying all risks, measuring their likelihood and potential impact, and selecting techniques to mitigate risks in a cost-effective way. Successful ERM requires commitment from senior leadership, a risk-aware culture, clear accountability, and ongoing communication.

Uploaded by

samyuktha1704
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
25 views

or "Enterprise Risk and Assurance Management" - What Is ERM?

Enterprise risk management (ERM) takes a holistic view of identifying and managing risks across an organization. It aims to maximize shareholder value by considering how various risks interconnect and impact the entire firm. Key components of ERM include identifying all risks, measuring their likelihood and potential impact, and selecting techniques to mitigate risks in a cost-effective way. Successful ERM requires commitment from senior leadership, a risk-aware culture, clear accountability, and ongoing communication.

Uploaded by

samyuktha1704
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 10

Enterprise Risk Management

• Or “Enterprise Risk and Assurance


Management”
• What is ERM?
– Concerned with a broad financial and
operating perspective
– Recognizes interdependencies corporate,
financial, and environmental factors
– Strives to determine and implement an
optimal strategy to achieve the primary
objective: maximize the value of the firm
Goals of ERM

• Ensure business continuity


• Enhance opportunities for the company to
achieve its objectives
• Create and increase company value
• Make risk management more cost-efficient
• Stabilize earnings
Evolution of ERM
• Historically: “risk silo” mentality
• Mid-1990s:
– First “Chief Risk Officer”
– First use of ERM terminology
• Late-1990s:
– Risk-related regulatory requirements (e.g., Turnbull)
– Earnings protection insurance debuts
• 2001:
– September 11
– Corporate scandals
– Beginning of efforts to improve corporate governance
Current State
• Findings from various surveys
– An acknowledged need to improve risk
management
– A recognition that a holistic approach is
appropriate and preferable
– ERM can improve overall capital management
and thus enhance corporate value and
competitiveness
– A variety of approaches to improving risk
management
– There are still problems to overcome
A Paradigm Shift
Traditional Emerging
• Risks managed in silos • Centralized mgt., with exec-
level coordination
• Concentrates on
physical hazards and • Integrated consideration of
financial risks all risks, firm-wide
• Opportunities for hedging,
• Insurance orientation
diversification
• Ad hoc / one-off projects Continuous and embedded
•
Types of Risks
• Operational • Legal
– Hazard – Compliance
– Physical – Regulatory
• Strategic • Financial
– Capital / resource – Capital markets
allocation – Credit risks
– Industry / competitors – Taxes
• Technological • Human capital
– Databases – Retention
– Security – Training
– Confidential information
• Reputational
• Stakeholder
Issues in ERM Implementation
• Different corporate cultures require different
ERM approaches
• Who is going to be the ERM champion within
the company
– Among senior executives
– Among departments / functions
• How to embed a risk management culture
and responsibilities throughout the firm
Components of the ERM Process
• Determine corporate objectives
• Risk identification

Likelihood
– Goal: comprehensiveness
Impact
– E.g., self-assessment
• Risk measurement
– Volatility measures

Likelihood
– Value at Risk (VaR)
Size of loss
Components of ERM (cont.)
• Assessing the impact E.g.,
“dynamic
– Stress or scenario testing financial
– Stochastic simulation analysis”

• Examine and select alternative risk


management tools and techniques
– Traditional risk transfer
– Natural hedging / diversification
– Integration of risks
Keys to Success in ERM
• Senior management commitment and
sponsorship
• Embed a “risk management culture” in the
corporation at the operational level
• Provide for accountability, both specific
and widespread
• Clearly defined responsibilities for
coordination and maintenance
• Adequate communication

You might also like