Enterprise Risk Management (ERM) Essay Sample
This essay sample shall focus upon the definition of Enterprise Risk Management, components, and advantages of an Enterprise Risk Management.
Enterprise Risk Management is a plan-based management strategy that aims in identifying potential hazards or dangers and helps in the mitigation of potential risks and the achievement of objectives of the business operations.
It not only identifies the business risks but also actively manages them by making a plan of action which is made available to the investors and the stakeholders of the company.
The ERM can be applied in varied types of business processes and industries such as aviation, health, public finance, energy, insurance, etc.
Modern businesses are very different from the traditional ones and have their new set of diverse challenges and dangers that needs to be faced by them while they are competing in the market.
The challenges can be related to any legal and human resource management process, operational procedures, finance, and risk of internal failure of systems.
The project managers and the other employees work with the ERM process which is to assess the relevant risks of the company by making an informed decision of handling them. It is the action plan for potential dangers in the future and responds to it.
For effective management of risks the identification of potential risks is very important and for this new staff is to be recruited in the new positions.
The new departments must be able to create enterprise risk managers to develop integrated risk management plans for dealing with the daily operations including quality control and equipment maintenance.
Components of Enterprise Risk Management Process
Enterprise Risk Management (ERM) has certain elements or components which are mandatory and are interrelated to each other in the process. These elements are required for the effective functioning and management of the business process.
The elements of Enterprise Risk Management (ERM) are:-
- Internal Environment – This element sets the view of the risk internally and addresses the risk by the people in the entity. It includes the risk appetite, ethical values, environment, risk tolerance, and risk management philosophy.
- The setting of the Objectives – Objectives must be set before the identification of events by the management and it ensures that management to be in compliance with the set objectives. It must be in support and alignment with the entity’s mission and risk appetite.
- Identification of Events – The internal and external events must be identified which are affecting the achievement of the objectives. Such identification of events helps in drawing a distinction between risk and opportunity.
- Assessment of Risk – The potential risks must be analyzed and assessed properly to analyze the impact and duration of it and to effectively manage it. It must be assessed in accordance with the set objectives.
- Response to Risk – The way a risk needs to be responded to and managed is the responsibility of the management of any entity. Such risk can either be responded to, avoided, reduced, or shared in the entity. A well-planned set of actions is meant for the alignment of risk with the entity’s risk tolerance and appetite.
- Control Activities – The policies and procedures are to be established to effectively control and carry out the risk responses.
- Information and Communication-Any important and relevant information is to be identified, captured, and communicated to enable people to carry out their responsibilities. Communication ensures smooth management functions and risk management flow of work in the entity.
- Monitoring – The management activities of the company will help in monitoring and evaluation of the Enterprise Risk Management. Any modification is to be made if required to suit the objectives of the entity.
Advantages of Enterprise Risk Management
- Enterprise Risk Management provides preventive measures to a company to avoid any potential disasters which may include determining how physical assets to be replaced and maintained.
It can improve the framework and tools used for performing the risk management functions inconsistency.
ERM can eliminate heavy and redundant processes by the right allocation of resources to mitigate the risks and improving efficiency.
- ERM boosts the confidence and self-esteem of the employees in the achievement of the objectives and goals of the entity. There is a sense of security as there is better legal compliance, regulations, and reporting.
It allows better risk reporting and mitigation. Such reports will develop a better understanding of the risk appetite, threshold, and tolerance.
- This ERM develops standard strategic business processes that helps to manage the organization well. It allows communication and discussion of risks by providing and sharing information to the senior management within and across the operations of the company.
- This ensures an efficient role in the long term growth and survival of the business. Every business faces events and risks during its life cycle and if treated timely will boost the capital and profit of the organization.
This requires monitoring of the operations and overcoming fear of uncertainty by developing a safe working environment. It increases the productivity level and stability of the company.
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The above sample mentions Enterprise Risk Management and it’s objectives.
Business Management QQI Level 6, Business and Finance QQI Level 5 and 6, Advanced Business Management QQI Level 6, Business Administration Course QQI Level 5, Supervisory Management QQI Level 6, Leadership and Management Training QQI Level 6, Managing People QQI, Business Studies NFQ Level 6 students can benefit from reading this essay sample.
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