Enterprise Risk Management – How It Is Defined
How do you define enterprise risk management? In businesses it includes processes and methods which are used by organizations in order to manage risks and to take up opportunities which relate to achieving such objectives. ERM which is the short form of enterprise risk management provides a framework for risk management. That includes identifying events and circumstances that may be relevant to the objectives of an organization. These are termed as risks and opportunities. It also allows them to assess the likelihood of occurrence, magnitude of possible impact as well as developing a response strategy.
Enterprise Risk Management – What It Involves
Enterprise risk management can be best described as a risk based approach for managing the activities of an enterprise. It includes concepts like internal control, strategic planning and the Sarbanes–Oxley Act. The concept is being evolved as per the nature of business of each enterprise. Also it helps to address the diverse needs of different stakeholders and to understand what is the spectrum of risk that is involved in managing such organizations. Usually regulators as well as debt rating agencies put much stress on risk management processes of their clients.
Enterprise Risk Management – Different Factors
When it comes to enterprise risk management, there are different factors which come into play. The steps involved are identifying the risk factors, analyzing them as per importance and likelihood of occurrence, responding to such analyses and monitoring the same. This is done for internal as well as external environments which surround an enterprise. The different factors included are avoidance which means avoiding certain risk related activities; reduction which is taking action so that risk is reduced if not eliminated. The other concepts are alternative actions that can be taken, sharing or insuring risk or accepting the risk factor involved.
Enterprise Risk Management – Monitoring Of Goals
When one sets up an enterprise risk management plan, it usually involves monitoring the internal control activities as well as reviewing the analytical reports. In certain cases management committee meetings are also set up with the right experts in order to monitor the working of a risk response strategy that has been implemented. Monitoring the objectives set by such a plan has to be done on a regular basis. Goals are usually set by organizations in order to manage risks as well as have a variety of departments or functions identified which will allow one to manage the risks.
Enterprise Risk Management – Different Functions Related To Risk
When it comes to enterprise risk management, there are certain functions that need to be conducted in order to put in place an enterprise risk management program. Initially one has to set up a strategic planning team to identify the threats and opportunities. Then comes the marketing aspect where the customer's requirements are considered. The compliance factors as well as ethics are also vital factors which go into defining an ERM program. In such ways, ERM programs are set up. They help organizations to have a concrete risk management process in place.