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... understand the risks, the language and the approach of other area. Moreover, team leader will also need to have a basic understanding of all the steps involved in the entire process and methodology used by each area. (Darcy S, 2001) This specialty area developed its own terminology and techniques for addressing risk. Moreover if enterprise use segmented approach then it doesnt provide senior management and the board with aggregated risk reporting and this realization has tend to the trend toward enterprise risk management which is supported by internal demand, external developments and advances in risk management methodology. (Lam J, Erisk 2001). Actual crisis and significant losses often create the internal demand for enterprise risk management. These internal issues are likely to be followed by critical assessments from auditors and regulators.
And sometimes technological advancement and globalisation lead to enterprise create change to cope with external environments and its no wonder that innovation is so difficult for established firm because they employ highly capable people and then set the to work within process and business model. Furthermore Basel II accord stated that by the end of 2006, a financial services company must carry a predetermined amount of capital to offset the level of risk found in company. Unlike the first version of this regulation in 1988, Basel II accord addresses not only capital risk but also an operational risk, including the risk It systems create for an enterprise. so in a way it mandates some form of enterprise risk management. As mentioned in CIO magazine David Weymouth, CIO of Barclays, the U. K. -based financial services company said "We " ve spent something like [$ 251 million] on a regulatory program.
Non compliance is a huge risk we need to manage. " So as the regulation change which directly affect the organization for managing risk according to new regulations. (Berinato S. 2003). so this process of evaluating risk management performance is complex and difficult. For example, decision to retain or transfer are best evaluated over several years rather than annually because of the averaging effect of random losses. (Kensicki P, 2001) Although, there are number of other factors have also play a vital role in development of enterprise risk management. For Example, recent advances in computing power provide the powerful modeling tolls necessary to perform sophisticated risk analysis for hazard risks, such as catastrophes, for financial risks, such as interest rate movements, and for other risks. on the other side, availability of extensive data bases of financial and other information allows users to examine historical information to determine trends, correlations and other relationship among variables that is essential to enterprise risk management. How organization uses tools and techniques when they use enterprise wide approach?
This is an important question to consider. But before that enterprise should know what the risk they facing and how do they compare with competitors and how the risk changing based on changes in business environment, what level of risk should they take and lastly how should they manage those risk, these are all play a very vital role when they decide any tool or techniques which they use in enterprise wide approach. And for the answer of these all questions organization are collecting and analyzing risk information using a variety of basic tools. Some of basic tools are Identification/Assessment, categorizations tools and financial quantification's tools. Identification / assessment tools enables a management team to collectively identify and assess the risk facing the organization. Risks includes strategic risk, operational risk, reputation risk, regulatory or contractual risk, financial risk, information risk and lastly new risk (these might include risks from new competitors or emerging business model, relationship risk and others).
These tools also enable the team to evaluate each risk according to its likelihood and its magnitude. Where categorization tools help organizations group and priorities their risks, by industry or within an entity. So having an proper categorization of risk an important for task for an enterprise when they use these approach. And financial quantification tools help organization to understand the potential impact of risks.
Value-at-risk and option theory are most commonly use models which are available to evaluate risk in financial area. As mention in KPMG enterprise risk management report, organization approach to risk management may be centralized at corporate level or decentralized among divisions or processes, depending on the nature of the risks in question and organization preferences of management But there is no right or wrong way to organize these risks. Centralized risks management mainly focus on risks that affect most if not all functions and processes (for example reputation) and other side Decentralized risk are those which are significant only within particular process which could be manage by separate division or that particular process line but nonetheless that affect the organizations ability to successfully implement its strategies overall. No matter whether risks are managed in centralized manner, in a decentralized manner, or combination of both, a new organizational trend is to create ERM program office and appoint chief risk officers (CROs) who are responsible for developing and managing risk management strategy. CRO plays a very vital role in risk management of an enterprise, and CRO is the person who is responsible for developing and implementing an enterprise wise risk management strategy that includes all aspects of risk. CRO is also responsible for number of other responsibilities that are as follow. (Lam J, Erisk 2001) Developing risk management policies, including the quantification of managements risk appetite through specific risk limits.
Providing the overall leadership, vision, and direction for enterprise risk management Establishing an integrated risk management framework for all aspects of risks across the organization Allocation economic capital to business activities based on risk and optimizing the companys risk portfolio through business activities and risk transfer strategies Developing the analytical systems and data management capabilities to support the risk management program These are all basic responsibilities of CRO and in most of the cases CRO reports CFO or CEO and some CROs have direct reporting to Board of Directors as well. and other functions that the CRO is commonly responsible for include capital management, risk analytics and reporting and the heads of risk management at the business units. Pamela G. Rogers, assistant treasurer, Roebuck &co. notes that just as companies have revenue and profit strategies, theres got to be a risk strategy, and CRO need to set it (KPMG, 2001) For the successful implementation of enterprise-wide risk management some of the elements play very important role. One is a clearly articulated risk management goals that provide a foundation for the enterprise-wide risk management program and for related training and communication.
Secondly, common risk language is also play considerable role because it enables individuals throughout the organization to conduct meaningful cross-functional discussions about risk. And lastly individual should clearly understand their role in the risk assessment and risk management framework for a successful implementation of enterprise-wide risk management. (Cumming and Hirtle 2001) Lastly, enterprise risk management is all about optimising the process with which risks are taken and managed and use of enterprise risk management approach become important because of organisation have started suffering huge losses, e. g. , Orange county, Baring bank, Sumitomo corp. and others.
Moreover risk management is fundament element of corporate governance. Management is responsible for establishing and operating the risk management framework on behalf of board. Enterprise risk management brings many benefits as a result of its structures, consistent and coordinated approach. On the other side losses are inevitable, but one must keep learning from the past. Risk itself is not bad, but risk that is misplaced, mismanaged, misunderstood or unintended is bad. So each enterprise needs to assess to best suitable method which suit best to its objectives References 1.
Berinato S, Enterprise risk Management, Risk rewards: Are you on board with enterprise risk management? You had better be. its the future of how businesses will be run Published by CIO Magazine Nov Issue, web 2. Coleman L, (May 2005) Enterprise risk strategy: managing business risks with modern finance techniques Published by University of Melbourne web 3. Cumming C and Hirtle B, (March, 2001) FRBNY economic policy review, The challenges of risk management in diversified financial companies 4.
DArcy S, (May 2001) Enterprise Risk Management Journal of Risk management of Korea, volume 12, number 1 5. Dickinson G, (July 2001) Enterprise Risk Management: Its origins and conceptual foundation The Geneva Papers on Risk and insurance, Vol. 26, No. 3 (July 2001) 360 - 366 6. Federal reserve board, (July 14, 2004) Using Enterprise wide risk management to Effectively Execute Business Strategies at risk management association and consumer banker association retail risk conference, Chicago web 7. Jacobson R; After D (Jun 1987) The role of risk in explaining differences in profitability the academy of management journal, Vol. 30, No. 2, (Jun 1987), 277 - 296 8. KPMG, (Nov 2001) Enterprise Risk Management: An emerging model for building shareholder value web 9. Lam j, (March 2000), Enterprise-wide risk management and role of the chief risk officer Erisk.
net 10. Marphatia A Risk management in financial services industry: An overview web whitepapers / htdocs /risk management fsg. pdf 11. Module Reader, (2005 - 06) Business Risk Management Glasgow Caledonian University 12. Risk reports. com the risk spectrum web 13.
Russell A, Shire Pharmaceuticals Group Plc Case study: Enterprise Risk Management 14. Steinberg and Anderson (2003) COSO, Executive summary committee of sponsoring organizations of the trade way omission enterprise risk management framework web 15. Submit J; Roth K, (Sep 1990) Cost effectiveness of risk management practices the journal of risk and insurance, Vol. 57, No. 3 (sep 1990), 455 - 470 16. Tillinghast-Towers Perrins, (2001), Enterprise Risk Management: An analytic approach web 17.
The institute of Internal Auditors, (September 29, 2004) The role of internal auditing in enterprise-wide risk management http: // web 18. Waring A and Glendon (2002) Managing risk, critical issues for survival and success into the 21 st century Thompson Learning 19. Young P; Blanch E (2005) Enterprise Risk Management: Another Perspective, reader, Glasgow Caledonian University reader
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Research essay sample on Risk Management Enterprise Wide
