Risk management is one of the most important components in empowering an organization to achieve its ultimate vision. With proper risk management culture and knowledge, team members will be “speaking” the same language, and they will leverage common analytical abilities to identify and mitigate potential risks as well as exploit opportunities in a timely fashion. In order to consolidate efforts, the existence of an integrated framework is crucial. This is why an ERM is necessary to the fulfillment of any organization's goals and objectives.

In your final research project for the course, your task is to write a 7-10 page paper discussing the following concepts:

• Why should an organization Implement an ERM application?
• Discuss at least one real organization that has been effective with implementing an ERM framework or /application.
• What are some key challenges and solutions to Implementing an ERM?
• What is Important for an effective ERM?

Answers:

1.

Why Should an Organization Implement an ERM Application?

Answer:

In our case, given that threats were culturally ingrained in the company, it was time to upgrade from pure expansion tablets in Excel to meet the strategic objectives. It was not just an enhancement but also a necessary step-up for senior management to get a snapshot of the current risk picture across the company.

All units and departments in all sectors of the organization will use the new technology framework. If risk data is provided by all groups and departments in the industry of the organization, detailed reports, and Interactive Armchairs could be delivered daily, weekly, or quarterly to the Chairman for Direction and Decision-making.

The organization also required an application that incorporated and consolidated risk data in departments and units and reflected the data in real-time. It was acknowledged to be the right tool for all units and departments in the various fields for the management of risks and for improvement of performance by improving decisionmaking. It is based on the necessary functionality, flexibility, and capacity to meet business, governance, risk, and compliance challenges. In reality, this was a critical factor in performance.

2.

Discuss at least one real organization that has been effective with implementing an ERM framework or /application.

Answer:

Enterprise Risk Management (ERM) is a vital tool to have great management in the inside and outside of the corporation. However implementing one is not an easy task. Coca Cola company is one of the biggest organization that implements ERM, it has a project called "The Vision 2020" wherein they expect to double its business and achieve a $60 billion revenue by 2020. The company had been using ERM programme since 2003, but only in 2010 that they started to make changes to position ERM more strategically. To support their project, the organization focused more on what they call the six "P's," which stands for People, Portfolio, Partners, Comments (2) Planet, Profit, and Productivity, this strategy allowed them to understand the critical risks within the organization and helped them to achieve their goal.

3.

What are some key challenges and solutions to Implementing an ERM?

Answer:

In Business Management, ERM (Enterprise risk management) is a process in which organization undertakes various methods and techniques to minimize the risks and grab long term opportunities for achievement of business goals.

Among many challenges, few challenges and its potential solutions are discussed below:

(1) Evaluating the value of ERM

The issue: The traditional investment decisions (financial risk) were easy to evaluate on the basis of different rewards metrics such as return on assets (ROA), return on equity (ROE)and risk adjusted return on capital (RAROC). But assessing ERM is very difficult because it has broader perspectives. Potential solution: Derive shareholder value from equity premium. Avoid risk by using various risk management techniques such as hedging, Insurance, etc. Increase saving for future uncertainties like capital requirements.

(2) Deciding the scope of Risk

The issue: Creating a consistent and generally applied risk terminology is a very difficult task. Because risks are subjective and they can never be standardised in nature. Any inconsistencies between risk descriptions or procedures are likely to endanger the program. Solution: Maintain a common risk framework. Analyse and evaluate past risks and its outcomes. Ascertain a formal risk management mechanism. Try to establish of definition in the related nature of business work by itself. (3) Time Horizon:

The risk assessment time horizon needs to be compatible with intended ERM program objectives. This is one of the important task to define an exact time horizon. The time horizon of ERM risk inspection is primarily based on the organization's objective to utilize ERM risk outcomes and its necessity to finance in risk management. Potential solution: Company should shift its assessment focus from the short-term risk to a longer-term risk or hybrid solution. It should utilise a rolling time horizon like to 12-18 months to mitigate annual inspection.

Various other issues are in the aspects of - Risk Assesment method, Qualitative vs Quantitative metrics, Ownership of ERM, Risk reporting, etc

4.

What is Important for an effective ERM?

Answer:

Healthy corporate culture, adherence to corporate governance regulation and statutory requirements.

Effective business strategy that covers risk in various aspects such as- Operational, credit, market, liquidity, Capital adequacy, financial, compliance, etc.

Strong risk appetite of the company. Risk appetite depicts the reception level towards changes that an institution is willing to accept while executing its business strategy. An organisation need to be high on risk tolerant.

Robust risk data and infrastructure that basically pertains to the manner in which an information is collected, incorporated, analyzed, and summarized into a detailed statement.

External environment is out of the control of the management. So a management need to have a strong internal controls which includes orgaozayinql culture, governance, policies, preventive procedures and and scenario planning.

An organisation must have a powerful scenario planning and stress testing domain which is necessary for capital planning and budgeting.