Enterprise Risk Management
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Enterprise Risk Management

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An introduction to ERM

An introduction to ERM

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    Enterprise Risk Management Enterprise Risk Management Presentation Transcript

    • ENTERPRISE RISK MANAGEMENTA COMPETITIVE EDGE FOR THECOMPANYANDHOW IT ADDS VALUE TO ITSSHAREHOLDERSPresented by:Anu Damodaran, MBA G 2nd Sem,AUD0260Amity University, Dubai1
    • OBJECTIVE To understand what Enterprise Risk Management is,why it is important for any business and how it can bemeasured. To know whether by measuring and managing therisks consistently and systematically can a companystrengthen its ability to carry out its strategic plan. To understand the methods/ tools used by firms tomanage Enterprise Risk. To study the processes and challenges inimplementing Enterprise Risk Management and toidentify how much risk can be retained and how muchshould be laid off.2
    • DEFINITION OF ERM“… a process, effected by an entitysboard of directors, management and otherpersonnel, applied in strategy setting andacross the enterprise, designed to identifypotential events that may affect the entity,and manage risks to be within its riskappetite, to provide reasonable assuranceregarding the achievement of entityobjectives.”Source: COSO Enterprise Risk Management – Integrated Framework. 2004.The Committee of Sponsoring Organizations of the Treadway Commission (COSO)3
    • EVOLUTION OF ERM Historically: “risk silo” mentality Mid-1990s: First “Chief Risk Officer” First use of ERM terminology Late-1990s: Risk-related regulatory requirements (e.g., Turnbull) Earnings protection insurance debuts 2001: September 11 Corporate scandals Beginning of efforts to improve corporategovernance4
    • THE COSO ERM FRAMEWORK5
    • WHY IS ERM IMPORTANT? Integrated strategy Consistency Communication Clear and concrete measures ofperformance6
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    • GOALS OF ERM Create and increase company value Ensure business continuity Stabilize earnings Enhance opportunities for the company toachieve its objectives Make risk management more cost-efficient8
    • TYPES OF RISKS Operational Hazard Physical Strategic Capital / resource allocation Industry / competitors Technological Databases Security Confidential information Stakeholder Legal Compliance Regulatory Financial Capital markets Credit risks Taxes Human capital Retention Training Reputational9
    • THE ERM PROCESS10
    • IMPACT VS. PROBABILITY11ControlShare Mitigate & ControlAcceptHigh RiskMedium RiskMedium RiskLow RiskLowHighHighIMPACTPROBABILITY
    • LowHighHighIMPACTPROBABILITYHigh RiskMedium RiskMedium RiskLow Risk• Loss of phones• Loss of computers• Credit risk• Customer has a long wait• Customer can’t get through• Customer can’t get answers• Entry errors• Equipment obsolescence• Repeat calls for same problem• Fraud• Lost transactions• Employee morale12EXAMPLE: CALL CENTER RISK ASSESSMENT
    • KEYS TO SUCCESS IN ERM Senior management commitment andsponsorship Embed a “risk management culture” in thecorporation at the operational level Provide for accountability, both specific andwidespread Clearly defined responsibilities forcoordination and maintenance Adequate communication13
    • ERM PREDICTIONS1. ERM will become an industry standard2. CRO position will be prevalent3. Audit committees will become risk committees4. Economic capital will replace VaR5. Enterprise-level transfer of risk6. Impact of advanced technology7. Measurement standard for operational risk8. Mark-to-market accounting9. Risk education will grow10. Salary gap between risk professionals will widen14
    • CONCLUSION However, let’s not underestimate how big achallenge it is Even in a “frictionless” world, quantifying andcodifying a holistic approach to riskmanagement is an enormous task Real-world realities make it even more difficult But it’s worth the effort15
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