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Enterprise Risk Management

Student’s Name

Institutional Affiliation

Course; Business Management

Instructor’s Name

Date
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Enterprise Risk Management

Introduction

(ERM) Enterprise risk management refers to the systematic identification and control of

probable events that might jeopardize the attainment of strategic goals or chances for competitive

advantage. Risk strategy, risk culture, risk philosophy, and risk appetite are all critical ERM

principles. These are representations of the organization's risk tolerance and the level of risk it is

prepared to accept. These are essential components of government accountability. Risk

management is a vital component of every organization's strategic management and should be

integrated into daily operations. Two frequently used frameworks are the Council of financing

the Organizations of the Tread way Board COSO's 'ERM – Integrated Framework' and the

advice created by the (IRM) Institute of Risk Management and Airmic – 'A structured strategy to

ERM and the ISO 31000 standards'. ERM's essential components are the identification of

significant risks and the execution of appropriate risk actions. Risk reactions include risk

acceptance or tolerance; risk avoidance or termination; transfer of risk or distribution via

insurance cover or policy adopted by the institution, a joint venture, or another arrangement; and

risk reduction or mitigation through internal control systems or other risk preventive efforts.

Significance of implementing an ERM application in an organization

The risk infrastructure or architecture, the recording of processes or risk management

procedures, the training, monitoring, reporting on hazards, and management of any associated

risks to business activities are all examples of management responsibilities (Callahan & Soileau,

(2017). Research from the recent study has suggested that implementing enterprise risk

management is a demanding and complicated task in the organization since many departments
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think they know all the components of Enterprise risk management. At the same time, the fact

stipulates clearly that there are several concerns about Enterprise risk management that different

departments need to adapt to ensure that they meet the short-term and long-term objectives of the

company.

The use of ERM ensures the effective use of resources.

The adoption and implementation of Enterprise risk management in the organization or

an institution willing to make profits ensure that the company efficiently uses its resources

through effective time management and pulling on effort as a whole term. When the employees

pull together their efforts in the distinct areas of specialization, the company will develop a spirit

of hard work and team spirit that brings positivity and combined effort to the business (Muslih,

2019). There is a need to create modern strategies for reporting concerns in the organization,

such as employees' problems, ranging from low salaries, office politics, or poor working

conditions. Perhaps the business or organization can adopt the Enterprise risk management

software, which makes it possible for relaying concerns that can be easily accessed and shared by

the different departments. Hence, it offers a platform for quick forwarding information that needs

immediate action (Saeidi et al., 2019). Proper relaying of concerns reduces the time spent

communicating and solving these concerns, making employees focus more on their delighted

duties.

ERM offers better coordination of compliance issues

The organizational expertise such as financial auditors, managers, regulatory examiners,

and compliance officers usually adhere and follow ERM programs strictly to monitor and control

activities inside a company. While these applications are known to save all available information
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regarding risks taken and regulated inside the firm, they also save time by eliminating the need to

visit each department and get information.

Implementing ERM ensures that everyone is focused on the Risk issues.

Companies that adopt enterprise risk management strategies in all the organization's

departments ensure better problem-solving techniques and adequate decision-making in all

organization departments. When an issue is addressed formally, an order is established in which

everyone participates (Bohnert et al., 2019). It entails bringing a problem to the notice of the

elders and informing the rest of the team. In this manner, a collaborative effort is evident

concerning risk management at the team level.

There is a more rational attitude and a greater emphasis on risk.

The implementation of Enterprise risk management offers betters methods of risk

identification. When these problems are identified early, the company can quickly form

strategies to help combat such issues in the organization (Muslih, 2019). With the assistance of

technology, things improve to the point where more outstanding risk management is possible

while also establishing a security alarm (system) for the rest of the business to ensure that they

are informed and do not face wrath afterward (Bohnert et al., 2019). When the RM is

implemented, the organization's personnel have a greater understanding of risk while also taking

control of the market and operational situations.

What are some key challenges and solutions to Implementing an ERM?

Several challenges affect the implementation of Enterprise risk management in an

organization with ambitions, objectives, and rationale for making profits. These challenges may

include:
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Evaluating the value of Enterprise Risk Management seems to be a Challenge

Developing a common and widely used risk lexicon is a monumental effort. Because

dangers are subjective and can never be quantified, any discrepancies in risk statements or

processes will very certainly jeopardize the program (Saeidi et al., 2019). Additionally,

conventional investment choices (financial risk) were straightforward to analyze based on

numerous rewards measures such as profitability (ROA), return on assets (RAROC), risk-

adjusted return on capital, and (ROE) return on Equity (Bohnert et al., 2019). But judging ERM

is quite challenging since it has more significant viewpoints.

Solving these Specific Problems

The issue about the decisions of determining the scope of the risk involved in the

implementation of the Enterprise risk management can be solved through the analysis of the past

risks that affected the company and how they impacted the organizational operations,

ascertaining formal risk management protocols, strategies, and protocols which have an

advantage for the company (Bailey et al., 2019). The company may also try to Establishment of

definitions in the context of business activity on its own. Issues related to evaluating the values

and rationale of the Enterprise risk management may adopt solutions such as eliminating risk via

different risk management measures like hedging, insurance, and so on. Increase your savings in

anticipation of future threats such as capital needs. Calculate shareholder value using the equity

premium.

What is essential for an Effective ERM?

An effective ERM obligates the organization to develop a stress testing domain and

capacity of the employees in the organization since it is evident that stress is linked to poor
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employee performance and other related psychological complications such as mental illnesses

and depression (Bailey et al., 2017). An effective ERM additionally requires the organization to

have better planning strategies which make it possible for capital planning and budgeting of the

available resources. The external environment is beyond management's control. As a result,

management must have robust internal controls, including organizational culture, governance,

policies, preventative procedures, and scenario preparation. A corporate culture that is healthy

and compliant with corporate governance regulations and statutory requirements (Muslih, 2019).

Effective company strategy addresses risk across several dimensions, including financial, capital

adequacy, liquidity, the market, credit, operational regulatory.

In continuation, Strong risk data and architecture refers to the process of collecting,

incorporating, analyzing, and summarizing information into a thorough statement. The firm has a

high tolerance for risk. Additionally, risk appetite reflects an institution's willingness to tolerate

changes to carry out its business plan. A business must have a high tolerance for risk.

An organization that has been Effective with Implementing ERM Framework

A Case Study of Gemini Motor Sports (GMS)

A Brazilian public corporation produces off-road recreational vehicles for sale via a

network of dealers in Brazil and Canada. GM's chief executive director David Cruz and senior

management were tasked with supervising the creation of the company's inaugural ERM

framework (Saeidi et al., 2019). During the first year of Enterprise risk management, the top

management organized a meeting with the team members and the rest of the employees to

determine the most common potential risks that were often disruptive to the typical

organizational operations (Callahan & Soileau, (2017). Their first presentation before the internal
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audit was criticized for repeating previous issues and was unhelpful to the business as it

deliberated on the company's strategic future. In the second year of the implementation, however,

the company searched for practical training for all their employees, and the top managers, in

consultation with the managers, identified the problems that affected the business the most in

terms of return on capital every financial year (Saeidi et al., 2019). These problems also may

have caused problems to the employees' adequate production time and decision-making

strategies in meeting the company's objectives.

The management asked the employees in the organization to assist the business in

determining the possibility and possible effect of identified hazards. The report that resulted was

well-received (Saeidi et al., 2019). However, the audit committee chair advised that the next

stage be an examination of the risk assessment and management and the degree to which it is

integrated with the organization's strategic management process, which would result in the use of

the company’s hazard and risk management framework.

Some of the Lessons the Company Learnt

Continuous monitoring and concise reporting on critical risk exposures are essential

components of successful risk management. Along with effect and probability, hazards'

commencement rate and persistence are imperative factors in risk prioritization (Saeidi et al.,

2019). Board members and workers must be actively involved in assessing a company's risk

appetite and recognizing and prioritizing hazards.

Conclusion

In conclusion, adopting Enterprise risk management in an organization has proved to

have a lot of advantages. They may include increased understanding of the organization's
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dangers and the capacity to react effectively, increased confidence in the ability to accomplish

the strategic aim, Compliance with legal, regulatory, and reporting standards have been

enhanced, and Increased operational efficiency and effectiveness. Companies that have adopted

the ERM have had a plethora of advantages as concerned with the risks that may affect the

business operations, quality of the goods and services produced, and employees in the

organization. ERM offers benefits for both the employees and the management team responsible

for the management of the organization.

Recommendations

There are some of the recommendations that the company needs to adapt to improve the boards

and the management insights before the implementation of ERM for reduction of potential risks

to the b business, which may include:

1) Align management's identification and mitigation of strategic risks with the strategy

2) Determine your risk tolerance

3) Determine the board's risk-management responsibilities

4) Strengthen potential risks and benefits throughout the enterprise

References
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Bailey, C., Collins, D. L., & Abbott, L. J. (2018). The impact of enterprise risk management on

the audit process: Evidence from audit fees and audit delay. Auditing: A Journal of

Practice & Theory, 37(3), 25-46.

Bohnert, A., Gatzert, N., Hoyt, R. E., & Lechner, P. (2019). The drivers and value of enterprise

risk management: evidence from ERM ratings. The European Journal of Finance, 25(3),

234-255.

Callahan, C., & Soileau, J. (2017). Does enterprise risk management enhance operating

performance?. Advances in accounting, 37, 122-139.

Muslih, M. (2019). The benefit of enterprise risk management (ERM) on firm

performance. Indonesian Management and Accounting Research, 17(2), 168-185.

Saeidi, P., Saeidi, S. P., Sofian, S., Saeidi, S. P., Nilashi, M., & Mardani, A. (2019). The impact

of enterprise risk management on competitive advantage by moderating role of

information technology. Computer Standards & Interfaces, 63, 67-82.