Enterprise Risk Management
ERM (Enterprise Risk Management) encompasses numerous processes and methods used by present day organizations to identify, assess, and control impending risks, and to grab hold of upcoming opportunities pertaining to accomplishment of their set objectives. It offers a risk management framework, which helps the business or service process to recognize the opportunities and risks in the way of achieving their primary objectives, evaluate them with regard to their degree of impact and probability of occurrence, determine an appropriate response strategy, and examine the progress regularly. |
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Making an investment in the implementation of the ERM framework is certainly worth it can help the enterprise to create and safeguard value for all stake holders, including employees, owners, regulators, customers, and society as a whole.
In simple words, ERM is nothing but an effective risk-based approach used to manage and maintain sustainability of an enterprise. The various concepts integrated together in an ERM plan include strategic planning, internal control, and the Sarbanes-Oxley Act. Numerous ERM frameworks, each with a different approach for analyzing and managing risks, are available nowadays. After the risks have been identified and their impact scrutinized, the various frameworks then go for one of the four response strategies, namely Avoidance, Reduction, Insuring, and Accepting. The most popularly used ERM frameworks include the CAS (Casualty Actuarial Society) framework and the COSO internal-control integrated ERM framework.
Although implementing an enterprise-wide risk management plan in the business process and aligning it with the existing processes yields great results and is a must for every company operating in today’s environment, there are few challenges that might be faced during implementation. Some most common challenges faced by enterprises include identification of suitable executive sponsors for ERM implementation, establishment of common risk terminology, validating the company’s total appetite for risk, identification of all the risks contained in the company’s risk inventory, and assessment of the plan’s cost benefits.
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