Enterprise Risk Management:

-A process effected by an entity’s board of directors, management and other personnel,

applied in strategy setting and across the enterprise.
-Designed to identify potential events that may affect the entity, and manage risk to be
within its risk appetite, to provide reasonable assurance regarding the achievement of entity
objectives.
-Process of planning, organizing, leading, and controlling the activities of an organization
in order to minimize the effects of risk on an organization's capital and earnings.

ERM consists of active and intrusive processes that:

1) are capable of challenging existing assumptions about the world within and outside the
organization;
2) communicate risk information with the use of distinct tools (such as risk maps, stress
tests, and scenarios);
3) collectively address gaps in the control of risks that other control functions (such as
internal audits and other boundary controls) leave unaddressed; and, in doing so,
4) complement - but do not displace - existing management control practices.

Benefits:
1. Accountability
2. Completeness
3. Integrated
4. Continuing effectiveness
5. Internal and External Compliance
6. Balance

Other Benefits:
• Enhance board risk oversight responsibilities
• Required in certain industries (financial, insurance)
• Executive risk-informed decision making
• Individual risk silos do not work
 • Create new measurable value
• Volatility and uncertainty abound
• Competitive advantage is critical for future success
• Avoid the strategy-execution gap
• Enhance audit and compliance
• Lessen the impact of adverse events

Risk Categories:

Underwriting
-Model Risk
-Product pricing
-Reserves
-Natural Catastrophe
Strategic
-Regional Concentration of Risk
-Reputation
-Global/National Economy
-Competition
Operational
-Availability of Reinsurance
-Regulatory Risk
-IT Risk
-Personnel Risk
Market
-Investment Market Risk
Liquidity
-Claims
Credit
 -Reinsurer Credit

Steps to design and ERM:

• Define desired program
• Implement ERM charter
• Establish risk appetite
• Define tolerance levels
• Start risk assessment process

ERM Practices:
CHAPTER 2

Business Risks - an event or anything that will prevent the organization from achieving its
business objectives or the effective execution of its strategies to achieve those objectives.
-threatens a company's financial goals. Business risks can be categorized as
internal or external risks and can include:
(Examples of risks)
-Political Changes
-Cybersecurity threats
-Threats to reputation
-Merger and acquisitions
-Health crises
-Location Hazards
Attributes of Business Risks:
• Uncertain
• Emerging
• Associated more with intangibles
• Sources (Internal and External)

Uncertain - Business uncertainty is when a business cannot predict what is going to happen or
directly influence it. This can lead to bad outcomes.
Risk is different from uncertainty because risk can be measured and you can make an
informed decision before taking action.

What types of business uncertainty can appear?

There are many types of business uncertainty, some more common than others. The most
common include:
Market conditions: Will the market for our product or service be good? Will we be able to sell
what we produce? What will our competitors do?
Economic conditions: How will the economy affect our business? Are interest rates going up or
down? Will there be a recession?
Legislative changes: What new laws or regulations will affect our business? How will they
change the way we operate?
Technological changes: What new technologies are available that could help or hurt our
business? How will we need to adapt to stay ahead of the competition?
Environmental changes: What if a flood or fire hits and damages our facilities? Will we be able
to recover?

What are some ways to manage business uncertainty?

There are a few key ways to manage business uncertainty:
 Plan for the worst: Make sure you have contingency plans in place in case something
goes wrong.
 Be flexible: Be prepared to change your plans if necessary.
 Monitor the situation: Keep an eye on changes in the market, the economy, and any
other factors that could affect your business.
 Communicate with your team: Make sure everyone on your team is aware of the
potential for business uncertainty and knows what to do if it happens.
Plan for the worst: What will you do if your funding is delayed? If a natural disaster strikes? If a key
customer decides to leave?
Be flexible: If the market shifts, be ready to adjust your tactics and strategy.
Monitor the situation: This will help you spot problems early and make changes before they have a
chance to do too much damage.

How can foresight be used to prepare for business uncertainty?

Foresight can help you prepare for business uncertainty by giving you a better understanding of
what futures might emerge.
This can help you make decisions that are more informed and less risky. Foresight is all about
understanding what might happen next and making plans accordingly.

Some of the most common methods of foresight include scenario planning, trend analysis, and
backcasting.

 Scenario planning is a method of looking at different potential futures and planning for
how your business would respond in each case.
 Trend analysis involves tracking trends over time to identify which ones are likely to
continue and which ones might change direction.
  Backcasting is a method of looking at the past to identify patterns that could help predict
future events.

Emerging - New or unforeseen risk that we haven't yet contemplated. This is a risks that should
be on our radar, but is not, and its potential for harm or loss is not fully known.

Associated more with Intagibles - These range from exposure to psychologically damaging
content online, data privacy and cybersecurity breaches (and any resultant physical harm, for
example, from online stalking) to reputational and brand risks.

Sources (Internal and External) - Internal risks include personnel management, such as labor
shortages or poor morale and technology issues, such as outdated software. External risks
include economic slowdowns, leading to lower revenue as well as political risks from trade wars
hurting international sales.

Sample Linkage of Business Risk to Business Objectives and Strategies

Main Types of Business Risk

 Strategic Risk – (e.g. a competitor coming on to the market)
 Compliance and Regulatory Risk – (e.g. introduction of new rules or legislation)
 Financial Risk – (e.g. interest rate rise on your business loan or a non-paying customer)
 Operational Risk – (e.g. the breakdown or theft of key equipment)