Benefits

Description

1. Align risk appetite and strategy:

·         Risk appetite is the degree of risk, on a broad- based level that an enterprise (any type of entity) is willing to accept in pursuit of its goals.

·         Management considers the entity’s risk appetite first in evaluating strategic alternatives, then in setting objectives aligned with the selected strategy and in developing mechanisms to manage the related risks.

2.       Link growth, risk and return:

·         Entities accept risk as part of value creation and preservation, and they expect return commensurate with the risk.

·         ERM provides an enhanced ability to identify and assess risks, and establish acceptable levels of risk relative to growth and return objectives.

3. Enhance risk response decisions:

·         ERM provides the rigor to identify and select among alternative risk responses – risk avoidance, reduction, sharing and acceptance.

·         ERM provides methodologies and techniques for making these decisions.

4.  Minimize operational       surprises and losses:

·         Entities have enhanced capability to identify potential events, assess risk and establish responses, thereby reducing the occurrence of surprises and related costs or losses.

5. Identify and manage cross-enterprise risks:

·         Every entity faces a myriad of risks affecting different parts of the enterprise. Management needs to not only manage individual risks, but also understand interrelated impacts.

6.      Provide integrated responses to multiple risks:

·         Business processes carry many inherent risks, and ERM enables integrated solutions for managing the risks.

7.       Seize opportunities:

·         Management considers potential events, rather than just risks, and by considering a full range of events, management gains an understanding of how certain events represent opportunities.

8.       Rationalize capital:

·         More robust information on an entity’s total risk allows management to more effectively assess overall capital needs and improve capital allocation.

Components

Description

1.       Internal Environment:

·         The internal environment encompasses the tone of an organization.

·         It sets the basis for how risk is viewed and addressed by an entity’s people, including risk management philosophy and risk appetite, integrity and ethical values, and the environment in which they operate.

·         Management sets a philosophy regarding risk and establishes a risk appetite.

·         The internal environment sets the foundation for how risk and control are viewed and addressed by an entity’s people.

·         The core of any business is its people. Their individual attributes, including integrity, ethical values and competence and the environment in which they operate. They are the engine that drives the entity and the foundation on which everything rests.

2.       Objective Setting:

· Objectives should be set before management can identify events potentially affecting their achievement.

·  ERM ensures that management has a process in place to set objectives and that the chosen objectives support and align with the entity’s mission/vision and are consistent with the entity’s risk appetite.

3.       Event Identification:

·      Potential events that might have an impact  on the entity should be identified.

·   Event identification includes identifying factors internal and external that influence how potential events may affect strategy implementation and achievement of objectives.

·  It includes distinguishing between potential events that represent risks, those representing opportunities and those that may be both.

· Opportunities are channeled back to management’s strategy or objective-setting processes.

· Management identifies interrelationships between potential events and may categorize events to create and reinforce a common risk language across the entity and form a basis for considering events from a portfolio perspective.

4.       Risk Assessment:

·   Identified risks are analyzed to form a basis for determining how they should be managed.

·  Risks are associated with related     objectives that may be affected.

·   Risks are assessed on both an inherent and a residual basis, and the assessment considers both risk likelihood and impact.

·  A range of possible results may be associated with a potential event, and management needs to consider them together.

5.       Risk Response:

·        Management selects an approach or set of actions to align assessed risks with the entity’s risk tolerance and risk appetite, in the context of the strategy and objectives.

·       Personnel identify and evaluate possible responses to risks, including avoiding, accepting, reducing and sharing risk.

6.       Control Activities:

·       Policies and procedures are established and executed to help ensure that the risk responses management selected are effectively carried out.

7.       Information & Communication

Information;

· Relevant information is identified, captured and communicated in a form and time frame that enable people to carry out their responsibilities.

·    Information is needed at all levels of an entity for identifying, assessing and responding to risk.

Communication;

·    Effective communication also should occur in a broader sense, flowing down, across and up the entity.

· Personnel need to receive clear communications regarding their role and responsibilities.

8.       Monitoring:

· The entire ERM process should be monitored, and modifications made as necessary.

· The system can react dynamically, changing as conditions warrant.

· Monitoring is accomplished through ongoing management activities, separate evaluations of the ERM processes or a combination of the both.