Enterprise risk management

Enterprise risk management (ERM) is a process used by organizations to identify, assess, manage, and monitor risks that could potentially affect the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives, assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress.

Overview

ERM is designed to manage risks and seize opportunities related to the achievement of an organization's objectives. It encompasses:

• Strategic risk
• Operational risk
• Financial risk
• Compliance risk

ERM frameworks often align with the organization's strategic planning and corporate governance processes. The goal is to create, protect, and enhance shareholder value by managing uncertainties that could influence the achievement of the organization's objectives.

Components of ERM

The key components of ERM include:

• **Risk Identification**: Identifying potential risks that could affect the organization.
• **Risk Assessment**: Evaluating the identified risks in terms of their potential impact and likelihood.
• **Risk Response**: Developing strategies to manage or mitigate identified risks.
• **Risk Monitoring**: Continuously monitoring the risk environment and the effectiveness of risk management strategies.

Frameworks and Standards

Several frameworks and standards guide ERM practices, including:

• COSO framework: Developed by the Committee of Sponsoring Organizations of the Treadway Commission, it provides a comprehensive approach to risk management.
• ISO 31000: An international standard for risk management that provides principles and guidelines.

Benefits of ERM

Implementing ERM can provide several benefits, such as:

• Improved decision-making
• Enhanced risk awareness and culture
• Better resource allocation
• Increased likelihood of achieving objectives
• Enhanced organizational resilience

Challenges in ERM

Organizations may face several challenges when implementing ERM, including:

• Lack of risk management culture
• Insufficient resources
• Inadequate risk information
• Resistance to change

Related Pages

• Risk management
• Strategic planning
• Corporate governance
• COSO framework
• ISO 31000

See Also

• Operational risk management
• Financial risk management
• Compliance risk management

External Links

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