Reference no: EM133019027

Read the scenario below and answer the questions that follow.

The growing popularity of Enterprise Risk Management (ERM) has given many organizations the opportunity to observe and experience the tangible advantages it can provide. In the pursuit of value, executives know that they must take risks to be successful in the highly competitive global arena. Although it is widely acknowledged that the volume and complexity of risks facing companies today are increasing, there are still a significant number of organizations that have not adopted ERM, citing concerns about bureaucracy, resource constraints, and the difficulty of measuring the value being derived from ERM. The difficulty in identifying value lies in the fact that it is challenging to directly measure the value of not having an event occur or having the impact of an event minimized, and to definitively tie that benefit to the ERM process. Nonetheless, companies who have adopted ERM cite numerous benefits that have been realized through the implementation of the enterprise wide approach to risk.

The main purpose of The Value Proposition for ERM: From Intangible to Tangible case study is to analyze and provide examples about how companies across various industries have experienced significant benefits from a robust ERM program. The findings from this case study suggest that there are several different aspects in which ERM adds value. One common finding is that it increases risk awareness and communication throughout different levels of the company. There were also interesting and unique findings, such as the use of ERM as a tool to aid in the allocation of resources. This case study will examine the way in which each of the six companies represented have experienced the advantages of ERM. There are six overarching sources of value discussed in this case study; they are organized from the most "intangible" to the most "tangible." In other words, the intangible sources of value are those that are broader and more general in nature. These sources are also the ones that seem to be experienced by most of the companies that participated in the study. Conversely, the tangible sources of value are ones that are more clear-cut and impact specific areas within the organization, exemplifying the most concrete observations in regard to the value that ERM can provide to an organization.

One of the most widely mentioned benefits of ERM from the participants in this case study is that it creates a structured approach to risk communication and awareness. More specifically, it gets individuals from the organization that truly should be engaged in risk management, more involved. Multiple companies mentioned how their ERM process allows risks to be effectively communicated between management levels, the executive level, and the Board of Directors (Board). Some companies use a dashboard tool to share key information on significant risks in a user-friendly manner. Company E stated that ERM creates a forum to discuss risks, allowing everyone's opinions to be heard and compiled in one place. This allows E to compare issues across the entire company and direct management's attention to specific risk areas. Similarly, Company F mentioned that ERM enables management to work in unison to identify both threats and opportunities, and then aids in the ability to manage and exploit them in a timely manner. Company D discussed how ERM provides management with "actionable data" that can be used to mitigate and manage risks. Participants mentioned how the use of dashboards has improved the effectiveness of risk communication within the organization. Company C utilizes a risk dashboard tool which creates a snapshot of both near-term and longer-term potential risk impacts all on one page. The information provided by these dashboards includes the prior period assessment of risks, how they have changed over time, and the future risk trends. By utilizing this tool, C is able to easily communicate an abundance of information regarding each identified risk. This information facilitates the development and execution of effective plans to manage risks and meet goals. In a similar fashion, Company E utilizes a key risk indicator (KRI) dashboard that monitors risk trends and provides an early warning for risks requiring more attention. It is evident that ERM can heighten the efficiency and effectiveness of risk awareness and communication throughout any organization.

Extracted from: https://erm.ncsu.edu/az/erm/i/chan/library/The_Value_Proposition_for_ERM_-_From_Intangible_to_Tangible.pdf

QUESTION 1

"In the pursuit of value, executives know that they must take risks to be successful in a highly competitive global arena. Although it is widely acknowledged that the volume and complexity of risks facing companies today are increasing, there are still a significant number of organizations that have not adopted ERM, citing concerns about bureaucracy, resource constraints, and the difficulty of measuring the value being derived from ERM".

1.1 Through utilising secondary research and applying relevant examples, provide a comprehensive analysis on why corporate risk management is considered a value adding initiative among various organisations.

1.2 Suggest reasons why there has been a growth in the volume and complexity of risks facing companies today. Your response should also provide measures that need to be adopted in successfully identifying these risks.

QUESTION 2

With reference to any organisation of your choice critically evaluate the concept of Enterprise Risk Management (ERM) and show how companies have experienced benefits from a robust ERM programme. Your response should make use of relevant examples.

QUESTION 3

Using any organisation of your choice, collect and analyse data in response to the following questions:

3.1 Using relevant examples, critically discuss and investigate the role played by company executives and the board of directors in managing organisational risks.

3.2 Reflect on risk pooling and diversification as risk management strategies and provide evidence why these are implemented in various contexts.