Course taster

Enterprise risk management

Enterprise risk management (ERM) is a holistic, integrated, strategic and company wide risk management process, rather than a separate management of individual risks. ERM takes a unifying, broader approach and looks at all the risks that the organisation faces. ERM looks at individual and interrelated risks; it looks at the company’s objectives and identifies all the risks that could impact them. Chapter 19 of Hopkin’s (2014) text provides some definitions of ERM and its link to business continuity.

Definitions of ERM

One definition of ERM includes three components:

There are four other definitions of ERM provided by the following that can be found in Chapter 19 of Hopkin’s (2014) text:

ERM systems are a deliberate attempt to break through the tendency of firms to operate in risk management silos and to ignore enterprise risks, as well as an attempt to take risk into consideration in business decisions. Boards are likely to push for the introduction of an ERM approach that encompasses market risk, credit risk and operational risk across all operating units (Crouhy 2006).

Chapter 19 of Hopkin’s (2014) text provides some insight into the successful implementation of ERM. The conundrum is that risk managers must show value in implementing ERM systems, but the inherent value of such systems only materialises when unforeseen events occur or even when no risk ever occurs.
Fraser and Simkins (2016) explore the challenges that companies face when implementing ERM systems. This article provides a summary of the basic techniques used to implement ERM systems and some guidance on how to improve the chances of a successful ERM implementation. This article also provides a good reference list of additional literature on the subject of ERM.

Please watch this video on what ERM is:

What is Enterprise Risk Management?

View What is Enterprise Risk Management? video transcript

Video embed-

Activity 7.4

Read the journal article entitled ‘Enterprise risk management and firm performance: the Italian case’ (Florio & Leoni 2016). The analysis demonstrates that companies with more-sophisticated ERM systems are both more profitable and better evaluated by financial markets. Consider a country that you are familiar with and extrapolate whether the conclusion of this paper would also apply to your chosen country. Post your findings to the Discussion Board and label the message appropriately (The link to the Discussion Board is not available in this course taster).