Relevance of Enterprise Risk Management 1
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Transcript of Relevance of Enterprise Risk Management 1
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RELEVANCE OF ENTERPRISE
RISK MANAGEMENT
BIIB
Presented by : DEVANSH JANIRoll No. 17
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INTRODUCTION
1.1 An enterprise exists to fulfill its established purposes for its stakeholders, by
taking on projects and interacting with external and internal clients. In the processof selecting and implementing projects, the enterprise must interact with various
players in its operating environment, deal with organizational issues, anticipate and
respond to changes in its operating environment and face unknown factors and
uncertain outcomes to avoid a crisis.
A crisis:
occur quite suddenly, sometimes with no warning;
invite outside scrutiny (media, government);
generate nasty headlines with lasting effects;
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damage enterprise and individual reputations;
directly affect top and bottom lines of the business;
cause upheaval in the senior management ranks;
damage relations with employees, investors, analysts, regulators,suppliers, and customers;
is unpredictable but more often, quite predictable (and evenavoidable); and
take years to fully recover from.
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Definitions for Enterprise Risk
Management (ERM)
Process by which organizations in all industries,assess, control, exploit, finance and monitor
risks from all sources for the purpose ofincreasing the organizations short and long
term value to its stakeholders.
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TYPES OF RISKS
Hazard risks are those risks that have traditionally been addressed byinsurers, including fire, theft, windstorm, liability, business interruption, pollution,health and pensions.
- Financial risks cover potential losses due to changes in financialmarkets, including interest rates, foreign exchange rates, commodityprices, liquidity risks and credit risk.
- Operational risks cover a wide variety of situations, includingcustomer satisfaction, product development, product failure, trademarkprotection, corporate leadership, information technology, management fraud andinformation risk.
- Strategicrisks include such factors as project completion, customerpreferences, technological innovation and regulatory or political impediments.
Although there can be disagreement over which category would apply to a specific
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FUNCTIONS Identify risks in all areas at once
Consider how risks can affect more than one area,
Use consistent measures so that different risks anddifferent operations can be compared
Use these measures in decision making as each riskfunction varies in capability and how it coordinates withother risk functions
Thus, the central goal and challenge of ERM is improving thiscapability and coordination, while integrating the output toprovide a unified picture of risk for stakeholders andimproving the organization's ability to manage the riskseffectively.
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Enterprise Risk Management
Framework ERM provides a framework for risk management,
which typically involves identifying particularevents or circumstances relevant to theorganization's objectives (risks andopportunities), assessing them in terms of
likelihood and magnitude of impact, determininga response strategy, and monitoring progress.
Enterprise risk management is not strictly a serialprocess, where one component affects only thenext. It is a multidirectional, iterative process inwhich almost any component can and does
influence another.
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Model of Enterprise Risk Management Process
Monitoring ,Control ,Activities
Information & Communication
Risk Response Risk Assessment Event
Identification Object Setting Internal Environment
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4.Components / Structure of
Enterprise Risk Management
Aligns risk appetite and corporate strategy
Enhances / improves risk response decisions
Reduces operational surprises and losses
Identifies and manages enterprise wise risks
Recognizes and acts upon opportunities.
Deploys responses effectively.
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5. IMPLEMENTATION OF ERM Implementing Enterprise Risk Management in an
organization requires the following steps:
Establish clear roles and responsibilities
Establish organizational and functional riskgovernance structure
Identify a risk champion
Involve all key business managers in the ERMprogram.
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Conclusion
ERMis not truly a new form of riskmanagement; it is simply recognition that risk
management means total risk management, not some
subset of risks. The new focus on the concept of
enterprise risk management provides an opportunity
for risk managers to apply their well established and
successful approaches to risk on a broader and morevital scale than previously. This is an excellent
opportunity to advance the science of risk
management.
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