Enterprise Risk Management Definition:
Enterprise risk management is a procedure designed to categorize impending events that may distress the entity, and minimize the risk and constrain it to entity’s risk appetite, to proffer rational assertion regarding the accomplishment of entity goals and objectives.
Normally the enterprise risk management is influenced by a company’s officials or any entity’s board of directors, management staff and other personnel, functional in policy setting and across the enterprise (a project, venture, company, etc). The description is reflected by a few assured elementary concepts. Enterprise risk management is an ongoing process, and in a manner of speaking it flows through the entity. The process is dependent on personal related to the entity and is effected at every level of an organization. The management process is applied in strategy setting, across the enterprise, at every echelon and unit, and entails taking entity level portfolio view of risk.
Fueled to accomplish the goals and objectives in one or more different but overlapping categories, the definition of enterprise risk management is purposefully broad. It confines or includes some significant concepts fundamental regarding management of risk by companies and other organizations, proffering a foundation for relevance across industries, sectors and organizations. It aims to directly accomplish the goals and objectives recognized by a meticulous entity and provide a foundation for defining enterprise risk management efficacy.
Components of Enterprise Risk Management:
Typically there are eight components of Enterprise risk management, and they are interrelated. These components are derivatives of management’s working style and are incorporated with the management progression. These components are as follows –
1. Internal Environment – The internal environment entails the attitude of an organization, and determines the course for how risk is analyzed and managed by an entity’s personal or management team per se, this incorporates risk management viewpoint and risk appetite, reliability and moral values, and the environment in which organization and the management team operate.
2. Goal Setting – Determining the goals and objectives are supposed to be the first phase, prior to identification of potential events that might affect the accomplishments of the organization. Enterprise risk management assures that management has a pre-defined set of process to allocate goals and objectives and that the preferred goals sustain, support and align with the entity’s vision, mission and are reliably consistent with its risk appetite.
3. Risk Identification – Internal and external events, either of them have the potential to affect the accomplishment of an entity’s goals and they ought to be identified, characterized and these events must be distinguished on the basis of risks and opportunities.
4. Risk Assessment – Risks are scrutinized, considering probability and impact, as a foundation for formative management. Assessing risks an inherent and a residual basis enables the organization to check them before the damage is done.
5. Risk Response – Management chooses risk responses based on the situation their clientele’s facing. Following are the risk responses – avoiding the risk, accepting it, reducing its impact, or sharing risk after prioritizing it. Also building a sequence of proceedings to align risks with the entity’s risk acceptances and risk appetite.
6. Control Activities – Policies, strategies and processes are planned as layout and employed to assure the risk responses are efficiently practiced.
7. Information and Communication – Significant and relevant information is recognized, identified, confined, and communicated in a structure and time-frame so that the management team as well as the organization can loyally perform their responsibilities. Effectual communication also takes place in a broader sense, flowing down, across, and up the entity.
8. Risk Monitoring – The summation of enterprise risk management is monitored, supervised and essentially improvised. Monitoring is attained in the course of enduring management activities, separate assessments, or both in some special cases.
Enterprise risk management is not stringently a successive process, where one constituent influences only the one adjacent to it. It is a “multi directional,” iterative process in which almost every component is capable of influencing any other component so it does.
Enterprise Risk Management Framework:
Below is the sample of enterprise risk management framework or ERM framework. This enterprise risk management framework template will assist you in building your own strategy for your enterprise. If you follow this ERM framework template, it will result you in great success in your risk management.
Accomplishment of Objectives:
This enterprise risk management structure is developed in such a manner that it attains all the (maximum) goals and objectives desired by the entity, and it is set forth in four categories –
- Strategic – Desired goals and objectives must support the mission of the entity.
- Operations – Resources used by the entity must be utilized efficiently and effectively.
- Reporting – All the relevant information must be report to the concerned authority i.e. reliability of reporting.
- Compliance – The procedures and objectives must be in compliance with applicable laws and regulations.
In this chapter we have learned about Enterprise risk management (ERM), its objectives, components, template and enterprise risk management framework. Hope this information will be helpful in your personal and professional life. Do share your thoughts and comments on the same.
- Tutorial Course - Basics of Risk Management for Beginners Module -
» e-Learning Chapter 1: What is Risk Management? Definition, Standards, Methods and Principles
» e-Learning Chapter 2: Risk Management Plan? Definition, Purpose, Template and Examples
» e-Learning Chapter 3: What is Risk Management Process? Overview, Definition and Process Steps
» e-Learning Chapter 4: What is Financial Risk Management? Definition, Methods, Techniques and Approaches
» Currently Reading: Enterprise Risk Management – Definition, Components, Framework and Template
» e-Learning Chapter 6: What is Operational Risk Management? Definition, Examples, Framework
» e-Learning Chapter 7: What is Risk Analysis? Definition, Examples, Methods, Techniques, Template
» e-Learning Chapter 8: Risk Assessment – Definition, Analysis, Matrix, Template and Examples
» e-Learning Chapter 9: Risk Mitigation – Plan, Strategies, Techniques, Template and Examples