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on 22-Apr-10 02:37.
Enterprise Risk Management: Aligning Design Principles to Corporate Goals
As most financial institutions have taken steps to increase their firm's value creation and capital productivity, further business optimization will likely require substantial transformation of their organizational structure and operating environment. Implementing an Enterprise Risk Management (ERM) function properly integrated with key management processes is one critical task facing many firms.
The language of bank executives and asset managers has converged significantly in recent years. And, while bankers are not yet talking about Alpha and Risk Budgeting, aren't they referring to the same concepts when they discuss Economic Value Added (EVA) and Required Capital? Investors and competitors are pressuring both sides toward performance optimization, forcing them to apply well-accepted laws of finance, derived from the Capital Asset Pricing Model, with more rigor.
Risk-adjusted return has become the norm, and the market is increasingly less inclined to reward performance that doesn't exceed expected averages for given risk levels.
Risk-Adjusted Performance Management (RAPM) is not limited to Enterprise Risk Management (ERM), but it is generally recognized that ERM is the cornerstone of RAPM. To that extent, ERM could be defined as the capability to assess risks and control exposure at the business unit and enterprise levels, in a manner that supports the optimization of a firm's financial performance.
on 22-Apr-10 02:36.
Enterprise Risk Management a Strong Strategic Choice
Wednesday, July 8 2009
Consider the 9/11 World Trade Center bombing, the Bernie Madoff fraud scandal, the loud crash of AIG, or the fraudulent activities of one lone French index trader. What do these events have in common? Only weeks before the historic events, few could have predicted the events, or their severity. Yet an organization's growth and indeed survival depends on its ability to face risks both expected and those that lie at the low ends of the probability curve. Enterprise risk management processes can help organizations more strategically and thoroughly manage their risk.
According to a recent joint study by MARSH and Risk and Insurance Management Society, 56 percent of companies who responded said that current economic conditions are driving changes to their risk management strategies, with fully 55 percent trying to take a more strategic approach to risk management. Almost one-fourth of the respondents reported a heightened focus from ratings agencies was driving increased risk management emphasis. Whatever the impetus, managing risk through an enterprise risk management (ERM) approach is the wave of the future.
on 22-Apr-10 02:36.
The Big Picture - Enterprise Risk Management Services
Internal Auditor, June, 2001 by Christy Chapman
Enterprise risk management takes a holistic look at risk and helps organizations manage it to achieve the greatest possible gains. Senior members of top accounting firms share their insights on this new approach that promises great rewards.
GOOD BUSINESS IS ALL ABOUT RISK: BUSINESS GROWTH CANNOT occur without introducing new risks; business objectives cannot be achieved without placing assets at risk; and business rivalries cannot be won without "out-risk-taking" the competition.
These tried-and-true maxims have never been more widely embraced, as more and more entities approach risk from a value perspective. Today's risk-seeking organizations view risk like an unruly child, hoping to tame its destructive tendencies while at the same time harnessing all the potential that such a powerful force surely holds.
Enterprise risk management (ERM) has recently emerged as one such method for managing risks more strategically. By holistically looking at all of the risks the organization faces and considering how they affect the overall accomplishment of goals, ERM helps organizations better handle their risks to achieve the greatest gains at the lowest cost.
The Big Five accounting firms are some of ERM's strongest advocates. Involved in holistic risk-management approaches since the germination stage, these firms have witnessed the problems, the mistakes, and the successes that have occurred along the way. They bring invaluable expertise to internal auditors who, in this new, risk-tolerant environment, are being asked to take a more active role in risk management.
on 22-Apr-10 02:35.
The Evolution Of Enterprise Risk Management
by Lawrence Richter Quinn
What you don't know about corporate "enterprise risk management" (ERM) may hurt you - and probably already is. Think of the number of post-Enron cases that have resulted in retirement benefits and stock value being wiped out overnight and weaknesses in corporate information technology systems that have allowed hackers to steal your identity (if not your wealth). All of these and a growing number of events are debacles you might have avoided had companies had an effective ERM program in place.
What Exactly is ERM?
Enterprise risk management is difficult to define, but generally it's a relatively new (less than a decade old) management discipline that calls for corporations to identify all the risks they face, to decide which risks to manage actively, and then to make that plan of action available to all stakeholders (not simply shareholders) as part of their annual reports. (To read more about risk, check out Determining Risk And The Risk Pyramid and Measuring And Managing Investment Risk.)
on 22-Apr-10 02:34.
Six Sigma Training - Enterprise Risk Management Applications Part 3
The fourth component of Enterprise Risk Management (ERM) applications will be explored here. Six Sigma Training is an effective tool in all areas of risk management, and there are eight basic elements to cover throughout the process. So far, it has been explained how Six Sigma Training and tools can benefit Internal Environment, Objective Setting, and Event Identification. The next principles of risk management to be explored include: Risk Assessment, Risk Response, Control Activities, Monitoring, and Information and Communication. In this article, you will learn about the effectiveness of Six Sigma Training in regards to Risk Assessment.
Risk Assessment within Enterprise Risk Management can be addressed using three basic tools of Six Sigma Training. Doing a risk assessment will allow any organization to predict and prepare for events that could affect the organization's ability to meet strategic and operational objectives. Six Sigma Training involves three tools that can quantify methods of risk assessment for an organization. The first is the Cause-and-effect matrix, which can identify critical parts of a process. It also gives numerical scores to various parts of the process to determine which create the greatest risks. The input is also scored, which refines the potential risk areas even further.
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