Some people think that the ERM is manages the risk of enterprise’s overall objectives. Now that is not an ERM. It is an Strategic Risk Management.
ERM is about to manage the risk all around the enterprise across the whole. ERM will not just going to look into top level risks.
ERM is a COSO initiative and depicts the ERM model in the form of a cube. COSO intended the cube to illustrate the links between objectives that are shown on the top and the eight components shown on the front, which represent what is needed to achieve the objectives. The third dimension represents the organisation’s units, which portrays the model’s ability to focus on parts of the organisation as well as the whole.
These drivers mean that an organisation and its board must have a thorough understanding of the key risks affecting the organisation and what is being done to manage them. ERM offers a framework to provide this understanding.
ERM is a COSO initiative and depicts the ERM model in the form of a cube. COSO intended the cube to illustrate the links between objectives that are shown on the top and the eight components shown on the front, which represent what is needed to achieve the objectives. The third dimension represents the organisation’s units, which portrays the model’s ability to focus on parts of the organisation as well as the whole.
The COSO ERM framework reflects the relationships between:
– The four objectives of a business (strategic, operations, reporting and compliance) which reflect the responsibility of different executives across the entity and address different needs.
– The four organisational levels (subsidiary, business unit, division and entity) which emphasise the importance of managing risks across the enterprise as a whole.
– The eight components that must function effectively for risk management to be successful.
Benefits of effective ERM:
– Enhanced decision-making by integrating risks.
– The resultant improvement in investor confidence, and hence shareholder value.
– Focus of management attention on the most significant risks.
– A common language of risk management which is understood throughout the organisation.
– Reduced cost of finance through effective management of risk.
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