The Enterprise Risk Management Essay
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The Enterprise Risk Management Essay
Enterprise Risk Management
ITS835 – Enterprise Risk Management
Dr. Jerry Alsay
University of the Cumberlands
In the face of various intricate risks, enterprises must realize the value maximization and sustainable development strategy, not only pay attention to the risks outside the enterprise, but also control the risks from the internal business process management level. The operation of an enterprise is composed of a series of business processes that solve the problems that need to be done to achieve the strategic goals of the enterprise and how these things are done (Clyde-Smith, 2014).
The operation and development of an enterprise is a collection of business processes that support the operation of these business processes as activities or “sub-processes” in a business process. The high-efficiency process is not a factor in the development of the enterprise. An important driving element that is lacking. However, in recent years, risk management has been continuously iteratively developed, and it has also become an important part of the daily management activities of major enterprises, especially through systematic process design, which integrates risk management into actual business processes, thus breaking the previous Various “information islands” realize the explicit model of enterprise risk management based on process management.
Enterprise risk management is to start from these processes, root the risk management methods and concepts in all aspects of business processes, achieve a certain degree of coupling with the company’s existing management framework, and build a risk management dominant based on process management. The model has been adopted to promote the effective implementation of enterprise risk management (Clyde-Smith, 2014). Enterprise risk management is more concerned about whether the management and control of enterprise risk points is effective, and process management should not only pay attention to the risk points of business processes, but also consider the cost, benefit and quality of the process. Although the two are different management methods and different in their concerns, enterprise risk management and business process management have the common goal of unifying and serving the strategic goals of the enterprise and ensuring sustainable and healthy development of the enterprise. The paper will explore intricacies of ERM.
The risks do not have to be assumed, they must be analyzed. At least when it comes to business risk management. Knowing how to identify and manage those factors that pose a risk to our organization can be crucial for the survival of the company. Risk management is acquiring an important role in the business environment, and this is confirmed by the most internationally recognized management models such as the EFQM. No activity is free of associated risk, if we are clear about it when we manage our personal lives, why not transfer it to the professional field? The risk in the management of projects is one of the most important when it comes to tipping the balance towards favorable or unfavorable results. Risk management must be integrated into the processes of the organization, that is, it should not be conceived as an isolated activity or whose responsibility falls only on some employees. It is the duty of all the members of the organization, especially in the management area, to design and execute processes that contemplate the risks that the organization faces.
The problems of the theory and practice of risk management in industrial enterprises are sharply aggravated in the context of the globalization of the world economy. A few decades ago, many countries and regions could develop in relatively closed, local conglomerations with a relatively low intensity of contacts with the outside world, and various hazards and development risks were localized by quite specific spatial and temporal frameworks.
However, today the situation has changed radically, all countries are part of a spatial-temporal continuum with the increasingly complex and accelerating dynamics of socio-economic development. The formation of a new, global world in which order is formed out of chaos, giving rise to a high level of uncertainty and business risks, new risks are emerging that require the use of fundamentally new approaches to their identification and analysis, the development of new tools and mechanisms for risk management and insurance.
From a design perspective, the risk management top-level framework must take into account the company’s future development strategy, cutting-edge process management concepts, mature business processes, the company’s current rules and regulations, and business status. The company’s supporting business processes, core value chain processes, and strategic processes are the input of the top-level framework design, with process management as the main line, and finally the output of the top-level framework based on process management enterprise risk management.
The enterprise risk management framework based on process management is divided into coarse and fine layer by layer in the form of context: top-level framework→business domain main process→sub-process→specific operational process, which together constitute the enterprise risk based on process management the management framework refines the chain.
Through the systematic design of the enterprise risk management framework based on process management, the enterprise risk management logic structure with clear hierarchy from top to bottom is constructed, the business process is refined, the risk links in each business process are identified, and the business processes are identified. The key risk control points, the control requirements of the key risk control points and the risk factors involved in the specific business are implemented in specific departments, and seamlessly interface with the job responsibilities, so that the business process is the link, and the risk management work is gradually solidified and displayed (Mandru, 2016).
ERM has a number of components. The first component is development of risk management strategy. For effective risk management, it is first of all necessary that the organization’s management has an understandable strategy in this area and in the field of corporate governance. Therefore, the oversight of these areas by the board of directors and the management board and the reporting to them are of particular importance. It is equally important to distribute responsibility for managing specific risks among structural units. Executive leadership should play a major role in risk assessment and management. The second component entails embedding risk management system in business processes. Introduction of a risk management system into the business planning process and performance assessment. This will allow you to quickly achieve strategic and operational goals. Risk assessment throughout the enterprise will help identify priorities and identify opportunities for improvement. The third component is optimization of risk management functions. Coordination of risk management activities and compliance with legal requirements eliminates duplication of functions and redundant activities and leads to a reduction in risk associated with risk management, cost reduction, expansion of risk coverage and increases efficiency. Improved control procedures and processes. It is possible to increase the efficiency and reduce the costs of control procedures by optimizing them and focusing on the main business processes, using automated rather than manual control procedures, continuous monitoring of their implementation and achieving key performance indicators. Improving the risk management system, informing stakeholders about the scope of risks. In order to move from a risk avoidance strategy to a willingness to assume the risks of an organization, it will be necessary to establish the position of director of risk management. In addition, management should create an atmosphere conducive to risk management.
Risk management has been in existence for a long time. In recent years, it has gradually become a hot spot in international concern. In some developed countries, risk management has not only developed rapidly in theory, but many companies have recognized the importance of risk management. Apply risk management to all aspects of business management. Especially after events such as Enron and WorldCom, risk management has become more important to all countries.. Despite the fact that ERM serves to help companies reduce risk, a considerable number of enterprises generally have insufficient awareness of risk management, lack of risk strategy, passive risk management, lack of risk management professionals, and risk management techniques and insufficient funds. The performance is: Enterprise strategy and risk management do not match. There is a need to justify the role of risk management so that companies can adopt it as part of their strategic plans. The paper therefore intends to explore key aspects that justify the role of ERM in companies.
Moshesh, Niemann & Kotzé (2018) conducted study to explore the implementation of ERM in petroleum industries. They considered Enterprise Risk Management (ERM) as one of the strategies for reducing risks. However, the authors are concerned about effectiveness of ERM. To prove this, the researchers evaluated implementation of erm in the supply chain of a petrochemical firm. The findings revealed that when planners do not align plans and measures to different stakeholders, the ERM may not succeed. This means that for effective implementation of ERM, planners should consider the needs of each and every stakeholder. Focusing on SMEs, Hudakova, et al (2018)considers risk management as crucial precursor for competitiveness within small and medium enterprises. It helps such businesses and enterprises cope with the dynamic. They revealed that ERM is key because it allows the managers assess market, financial, economic and personnel risks. They concluded that assessing such risks will bring the situations in better conditions. The article helps in identifying some of the risks that should be considered when doing ERM. However, it is not clear whether the same can be applied to the big corporations.
On the other hand, Saeidi, et al (2019) conducted a study to determine the relationship between the ERM and the competitive advantage. The researchers used Iranian financial institutions as the subjects of the research. The institutions were given surveys and then the responses were analyzed using Partial Least Squares Structural Equation Modelling. They concluded that ERM had a positive relationship with the firms’ competitive advantage. They further observed that ERM is even more effective if information technology component is included.
In his study, Su-Mian Peng. (2017) attempted to demonstrate how enterprise risk management can be used in commercial banks. The study revealed that enterprise risk management is crucial because it helps commercial banks see some of the risks that couldn’t have been visible under normal situation. That is why they used the concept of picture fuzzy. He concluded that the ERM is indeed practical in cases where the risks are complex and cannot be determined easily. This is because ERM has some models that can help risk managers to comprehensively identify different types of risks.
A study by Shad, et al (2019) focuses on the sustainability reporting, ERM and business performance. The study was based on the fact that effective adoption of ERM could enhance the business performance. The researchers wanted to determine the nature of effect if sustainability reporting is factored in. This is because they believe that sustainability reporting is critical input for strategic management and corporate planning. They concluded that ERM works well with the sustainable reporting in improving the performance of the company. The findings reinforces the need for managers to consider ERM as a central element in company’s performance. It is upon businesses to identify the suitable framework and use it to adopt ERM.
On the other hand, Ogutu, Bennett & Olawoyin (2018) attempted to compare the traditional and enterprise risk management system. The goal is to determine the nature of gaps and to tell which of the risk management system is better. The study stresses the fact that ERM can be applied in organizational risk planning for human well-being. Based on the findings, it is clear that ERM serves to foster well-being of the employees if utilized well. Although it shares some features with traditional risk management system, ERM seems superior and hence it is best for organizations which are planning to improve their risk management system.
Messer (2017) conducted a study on ERM on airport. He started by acknowledging how risky it is to operate an airport. It then hypothesize that one way of strategic planning is to identify, assess and manage risks. This is why the concept of ERM comes in. Messer went on to identify key elements of ERM. Evidently, the ERM is crucial because it can help organization identify both known an unknown risks. It also helps organization prioritize on the risks that should be given much attention. In airport, for example, ERM identified 220 risks. Among these risks, 74 are considered above the risk tolerance level. It can therefore be concluded that ERM is indeed a strategic planning tool. On the other hand, Blaskovich & Taylor (2011) attempted to compare how ERM is viewed theoretically and how it is applied practically so as to determine whether what is found in theoretical realm is applied in practical realm. In theory, it is considered as a tool for assessing, identifying and managing the holistic portfolio of risks facing the entire organization. They concluded that the need for ERM is urgent because of ever-changing business environment. Changing business environment contribute to uncertain and risky environment. ERM is urgent because it promises a structured approach for managers to manage such uncertainties. They however noted that since ERM agitate for holistic risk management, it may not be practical to achieve it. A study by Choi et al (2016) describes the ERM as a systematic and integrated way of managing all risks that organization faces. The study is based on a review of literature review. The researchers identified different risks and their unique mitigation methods. They concluded that each risks is unique and hence need unique intervention measures. This is why ERM, which is systematic way is very crucial in risk management. They also revealed that if ERM is implemented appropriately, it will increase the competitiveness of the organization. However, one thing stressed is that the first thing is to identify unique risks and not to generalize. Similarly, Zhao et al (2013) describes ERM as a strategy used to identify potential events that may affect the entity. It is also a strategy that helps in managing risks within its risk appetite. ERM, based on previous studies, can lead to increased profitability and earnings. It also forms basis for better decision making and is also a strategy for achieving competitive advantage. Focusing on ERM maturity, the researchers reveals that the sophistication of ERM influence its maturity. The focus for the study was the implementation of ERM in construction firms. The study concluded that it is crucial to evaluate the ERM maturity because it will help firms get a clear view of their ERM implementation and come up with ways to improve weak areas.
Chu, et al (2017) evaluated the role of ERM in management of logistics during the peak season when the demand for the manufactured products is so high. The researchers wanted to come up with compound option mechanism that can help manufacturers and logistical system ensure that the demand uncertainty is addressed amicably. They revealed that by coming up with such mechanism, the parties involved (manufacturers and suppliers) can work optimally because it allows manufacturers an option to outsource logistic carriers in event that the demand is too high. Similarly, the outsourcing logistic carrier can use the mechanism to use outside carriers depending on the orders on demand. This means that ERM can be used in solving demand uncertainty risk and can also help in reducing hedging costs.
From the findings, it is clear that ERM can be a strategic tool for any company. The literature review demonstrated that appropriate implementation of ERM gives a company competitive advantage. However, it is stressed that the implementation is often a challenge. Therefore I recommend ERM to any company aspiring to do great things. Risk management must be integrated into the processes of the organization, that is, it should not be conceived as an isolated activity or whose responsibility falls only on some employees. It is the duty of all the members of the organization, especially in the management area, to design and execute processes that contemplate the risks that the organization faces.
Blaskovich, J., & Taylor, E. Z. (2011). By the Numbers: Individual Bias and Enterprise Risk Management. Journal of Behavioral & Applied Management, 13(1), 5–23. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=76550293&site=ehost-live
Choi, Y., Ye, X., Zhao, L., & Luo, A. (2016). Optimizing enterprise risk management: a literature review and critical analysis of the work of Wu and Olson. Annals of Operations Research, 237(1/2), 281–300. https://doi.org/10.1007/s10479-015-1789-5
Chu, C.-P., Hsiao, Y.-L., Cho, C.-M., & Chen, Y.-C. (Cindy). (2017). Applying compound options in logistics enterprise risk management. Journal of Industrial & Production Engineering, 34(2), 135–146. https://doi.org/10.1080/21681015.2016.1241307
Clyde-Smith, J. (2014). Utilising enterprise risk management strategies to develop a governance and operations framework for a new research complex: a case study. Journal of Higher Education Policy & Management, 36(3), 327–337. https://doi.org/10.1080/01587919.2014.899051
Hallowell, M. R., Molenaar, K. R., & Fortunato, B. R. (2013). Enterprise Risk Management Strategies for State Departments of Transportation. Journal of Management in Engineering, 29(2), 114–121. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000136
Hudakova, M., Masar, M., Luskova, M., & Patak, M. R. (2018). The Dependence of Perceived Business Risks on the Size of Smes. Journal of Competitiveness, (4), 54–69. https://doi.org/10.7441/joc.2018.04.04
Mandru, L. (2016). How to Control Risks? Towards a Structure of Enterprise Risk Management Process. Journal of Public Administration, Finance & Law, (9), 80–92. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=117309176&site=ehost-live
Messer, R. (2017). Risky business: Using enterprise risk management at an airport. Journal of Airport Management, 11(2), 202–213. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=122621512&site=ehost-live
Moshesh, R., Niemann, W., & Kotzé, T. (2018). Enterprise Risk Management Implementation Challenges: A Case Study in a Petrochemical Supply Chain. South African Journal of Industrial Engineering, 29(4), 230–244. https://doi.org/10.7166/29-4-1782
Ogutu, J., Bennett, M. R., & Olawoyin, R. (2018). Closing the Gap: Between Traditional & Enterprise Risk Management Systems. Professional Safety, 63(4), 42–47. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=128783049&site=ehost-live
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. https://doi.org/10.1016/j.csi.2018.11.009
Shad, M. K., Lai, F.-W., Fatt, C. L., Klemeš, J. J., & Bokhari, A. (2019). Integrating sustainability reporting into enterprise risk management and its relationship with business performance: A conceptual framework. Journal of Cleaner Production, 208, 415–425. https://doi.org/10.1016/j.jclepro.2018.10.120
Su-Mian Peng. (2017). Study on enterprise risk management assessment based on picture fuzzy multiple attribute decision-making method. Journal of Intelligent & Fuzzy Systems, 33(6), 3451–3458. https://doi.org/10.3233/JIFS-16298
Zhao, X., Hwang, B.-G., & Low, S. P. (2013). Developing Fuzzy Enterprise Risk Management Maturity Model for Construction Firms. Journal of Construction Engineering & Management, 139(9), 1179–1189. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000712
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
The background and/or significance are missing. No search history information is provided.
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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The Enterprise Risk Management Essay