FROM FATAL REMEDIES TO FORMALITY THAT WORKS—AND HOW NEW ACCOUNTING BEGINS CONSTRUCTING RISK APPETITE: CASE STUDIES DISCUSSION.
FACILITATING ONLINE WORKSHOPS
BLACK SWAN” WORKSHOPS REFERENCE
THE IMPORTANCE OF ENTERPRISE RISK MANAGEMENT
THE CHALLENGES 3. THE SOLUTIONS
BROKER RESPONSIBILITIES, SAMPLE BROKER SERVICE AGREEMENT
CHECKLIST—THE PROCESS FOR MARKETING LARGE INSURANCE PROGRAMS
THE HIGHER EDUCATION ENVIRONMENT EMERGENCE OF ERM IN HIGHER EDUCATION ADOPTING AND IMPLEMENTING ERM IN. LESSONS FROM INTEGRATING ERM WITH ONGOING MANAGEMENT INITIATIVES SOME KEY VALUE LESSONS FROM ERM CONCLUSION.
List of Tables
List of Illustrations
Exhibit 36.5 ADKAR Change Management Methodology Exhibit 36.6 An Example of Go/No Go Criteria In this example, showing “yello. Exhibit 40.4 University of Washington Student Profile Exhibit 40.5 UW's Approach to Risk Management Compared to Other Institutions.
Praise for Enterprise Risk Management
In this environment, the second edition of Enterprise Risk Management: Today's Leading Research and Best Practices for Tomorrow's Executives, offers insights into what practitioners are doing and what the future holds. The Second Edition of Enterprise Risk Management: Today's Leading Research and Best Practices for Tomorrow's Executives is the most comprehensive review of the history, applications, and implications of ERM in the marketplace.
ENTERPRISE RISK MANAGEMENT
Today’s Leading Research and Best Practices for Tomorrow’s Executives
Title: Enterprise risk management : today's leading research and best practices for tomorrow's executives / [edited by] John R.S. I also want to thank co-editor John Fraser who is a guru on enterprise risk management and a thought leader in this area.
Overview and Drivers of
Enterprise Risk Management
Enterprise Risk Management: An Introduction and Overview
WHAT IS ENTERPRISE RISK MANAGEMENT?
The leading experts in this field clearly explain what enterprise risk management is and how you can teach, learn, or implement these leading practices within the context of your business activities. Our companion volume, Implementing Enterprise Risk Management: Case Studies and Best Practices (2015), consists of numerous case study examples of how companies have actually implemented ERM in their organizations.
DRIVERS OF ENTERPRISE RISK MANAGEMENT
2002,which places greater responsibility on the board of directors to understand and monitor an organization's risks. Ensures that the business objectives are clearly defined Reinforces the understanding of the business objectives throughout the layers of management.
ABOUT THIS SECOND EDITION
Overview and Drivers of Enterprise Risk Management
Enterprise Risk Tools and Techniques
Types of Risk
Special Topics and Case Studies
41 Enterprise Risk Management: Lessons from the Field 42 Financial Reporting and Disclosure Risk Management 43 Directors and Risk: Whither the Best Practices: Evidence.
SUMMARY OF THE BOOK CHAPTERS
Overview and Drivers of Enterprise Risk Management
In Chapter 4, “The Role of the Board of Directors and Senior Management in Enterprise Risk Management,” Bruce Branson (Professor of Accounting and Associate Director of the Enterprise Risk Management Initiative, North Carolina State College of. Oversight,” John Fraser (Former Senior Vice President, Internal Audit and Chief Risk Officer, Hydro One Networks Inc., and co- editor of this book) explains the role of the board of directors in overseeing risk management.
Enterprise Risk Management, Culture, and Control
With his experience in both federal government and ERM theory and practice, in Chapter 12, “Increasing Adoption of Enterprise Risk Management in the U.S. In this chapter, Toby describes decision making in the risk management realm as “far from black and white,” and points out.
Enterprise Risk Tools and Techniques
Rob describes in an easy step-by-step fashion how to design workshops based on the objectives to be achieved; for example, how important is team building versus specific action planning. In Chapter 20, “How to Prepare a Risk Profile,” John Fraser and Rob Quail provide practical advice on how to prepare a risk profile for executive management and the board of directors.
Types of Risk
She frames her explanations around questions such as: How do you align operational risk management with ERM. This chapter explores the reasons why organizations choose to outsource, some of the risk management implications of this activity, and common.
Special Topics and Case Studies
Next, they review one of the more difficult areas of ERM research, which is determining if ERM creates value for organizations. In Chapter 41, “Enterprise Risk Management: Lessons from the Field,” we have the benefit of the knowledge from a trio of.
FUTURE OF ERM AND UNRESOLVED ISSUES
In this chapter, the authors conclude that when directors sit on a board that has adopted a formal risk oversight framework, there is evidence of better risk management practices, and that not adopting such a framework appears associated with poorer risk management practices. Often it appears to be caused in part by confusion over exactly what ERM is and undue.
ABOUT THE EDITORS
Rob has lectured on ERM techniques at the York University Schulich School of Business since 2010. In addition to his ERM roles, Rob has held key executive leadership roles in the areas of business.
NOTES
A Brief History of Risk Management
FELIX KLOMANAND (to 2008)
INTRODUCTION
RISK MANAGEMENT IN ANTIQUITY
But by 585 BC, the Greek philosopher Thales used his observations, written data, and deductions to predict an eclipse of the sun, even though he continued to profess a belief in these gods.2 A century later Herodotus used intelligent “enquiry” to write “history,” but he too persisted with the power of divinities. With the growth and dominance of the new monotheistic religions in the Middle East and Mediterranean, it would take another.
AFTER THE MIDDLE AGES
Where once philosophers and theologians attributed fortune or misfortune to the whims of gods, the efforts of those early thinkers described in Bernstein's book, “have transformed the perception of risk from chance of loss into opportunity for gain, from FATE and ORIGINAL DESIGN to sophisticated, probability-based forecasts of the future, and from helplessness to choice.”5. The essence of risk management,” Bernstein concludes, “lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.”.
THE PAST 100 YEARS
1966 The Insurance Institute of America develops a set of three examinations that lead to the designation “Associate in Risk Management” (ARM), the first such certification. 1994 Bankers Trust, in New York, publishes a paper by its CEO, Charles Sanford, entitled “The Risk Management.
FINAL WORDS
Time transforms risk, and the nature of risk is shaped by the time horizon: the future is the playing field. Peter Bernstein, Against the Gods, John Wiley & Sons, New York, 1996 (Revision September 2008. An earlier version of this brief history appeared in the December 1999 issue of Risk Management Reports.).
ABOUT THE AUTHORS
Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk. Strategic Risk Council, an ex-Practitioner Associate Editor of the Journal of Applied Finance, and a past member of the Risk.
Strategic Risk Management: The Third Paradigm
Strategic risk management (SRM), the tool we introduce in this chapter, provides executive teams with an effective roadmap to link strategy and risk. The presence of these risks gave rise to the development of enterprise risk management (ERM), codified in the initial work of the Committee of Sponsoring.
THE FOUNDATION
Strategy
An organization's strategically valuable resources also include assets such as brands, patents, organizational cultures, and the skills of its people. The underlying structure and competitive dynamics of an industry, such as the economics of airline travel, rather than internal resources and capabilities, will sometimes determine competitive fates.
Strategic Risk
Technology also includes new transportation methods and financial instruments such as stocks, bonds, and instruments like asset-backed securities. Companies respond to external exposures differently because they all have unique features that define how managers frame their perception of strategic risks and determine the options for responding.
Strategic Risk Management
Strategic risk management acts as an antidote to the myriad forces that distract managers from tracking the rapid and unending. It also provides a formal and systematic response to the natural “gravitational pull” of strategy to resist change and adaptation.
THE FRAME
The mindsets of SRM provide a set of structural supports and framing that will support the actual. Mental maps matter tremendously for higher-order activities such as strategy making and risk management.
Focus on Unknowns, Both Known and Unknown
Management might know about the origins and sources of some of those uncertainties, such as technological changes in artificial intelligence and machine learning or shifting societal values;. Unknown unknowns represent a particularly virulent form of strategic risks because these events can't be known, nor do actors have any inkling that some types of events might exist.
Clarify Risk Capacity and Risk Appetite
Risk appetite helps leaders develop a strategic risk profile, the optimal balance between risk and return, how much to invest in mitigating threats or pursuing opportunities. Executive teams then use these measures to clarify and refine both their risk appetite and capacity, two important.
Embed SRM with ERM and Other Risk Tools
Risk appetite specifies the amount a company is willing to invest on any single project or initiative (Godfrey, Lauria, Bugalla, and . Narvaez 2020). Each of these elements allows an organization to frame, consider, and respond to new strategic uncertainties in their environment.
Integrate SRM into the “Strategy Complex”
Finally, because goal setting may or may not be linked to competitive advantage, any subsequent environmental analysis may or may not identity those shifts in the PEST forces, technology,. SRM notes important changes in the PEST drivers in real time, and links them to strategic concerns.
THE FINISH: STRUCTURE
We realize that our description of the process captures a stylized reality, but we note three important limitations of the typical strategic planning process. SRM becomes the steward of competitive advantage, making sure that all those broad goals and high-level objectives support and sustain competitive advantage, the answer to the four critical questions of strategy.
SRM and the Correct Level of Management
ERM programs and staff sit naturally at this level of the organization, and they should deal with counterparts who share the same operating time frame and whose work spans multiple units or functions. Exhibit 3.2 shows that SRM fits squarely in the realm of the C-suite and the board.
SRM and the Chief Risk Officer (CRO)
As a member of the C-suite, the CRO must have the formal authority that grants control over their own budget and human capital development and deployment. The CRO can weigh in on questions like, Will political revolutions in the developing world endanger.
THE FINISH: CULTURE
The CRO contributes to the strategy formulation process by helping other executives grapple with the uncertainty of future activity and pointing out valuable options. CROs can also point out the upside of strategic options and the potential for extending competitive advantage into new areas.
Long-Term Perspective
Humility
Diversity
First, functional knowledge cuts at the joints between signal and weak noise, what might become something versus a passing fad. The corporate center brings its own diverse perspective, one that incorporates the breadth it sees across functions or business units, but also a unique perspective that synthesizes functional breadth into its own, higher-level outlook.
Communication
Vertical communication means how the information gets on the radar screen of those tasked with the management of strategic risk, the board of directors and the C-suite. Attention to strong horizontal and vertical communication fights against simplistic communication, and the respect for diversity preserves both ambiguity and nuance.
CONCLUSION
Organizational humility comforts executives and others as it reminds them that they don't know everything, and the world is uncertain. SRM can provide executive teams, and the organizations they lead, with a powerful set of tools to survive and thrive in a VUCA world.
Economic ‘Short-Termism’: The Debate, the Unresolved Issues, and the Implications for Management Practice and Research.” Academy of Management Review. John Bugalla has over 20 years of experience as an enterprise and strategic risk management consultant.
The Role of the Board of Directors and Senior Management in Enterprise Risk
The role of the board is to ensure that the risk management processes designed and. This chapter addresses the proper role of the board of directors in corporate risk management.
GOVERNANCE EXPECTATIONS FOR BOARD OVERSIGHT OF RISK MANAGEMENT
The board should be especially sensitive to so-called “red flags,” or violations of existing risk limits established by the risk management team. It is imperative that the board is aware of all material legal requirements applicable to the company, and the company should take care to include these risks in the.
The first two of these components clearly include a role for the board in the development of a robust risk management process for the organizations they serve. Top management and oversight bodies (i.e., boards of directors), where applicable, should ensure that risk management is.
DELEGATION OF RISK OVERSIGHT TO BOARD COMMITTEES
The committee will periodically receive reports on and discuss governance of the company's risk assessment and risk management processes and will review significant risks and exposures identified to the committee by management, the internal auditors or the independent auditors (whether financial, operating, or otherwise), and management's steps to address them. For both groups, approximately 80 percent of the organizations reported that their boards were asking for more engagement by management in identifying, assessing, managing, and monitoring risks on the horizon.
SENIOR EXECUTIVE LEADERSHIP IN RISK MANAGEMENT
For many, this begins by defining risk terminology or developing common definitions of key risk concepts so that risk management approaches are implemented consistently across the enterprise. The 2017 COSO Enterprise Risk Management Framework defines risk as “the possibility that events will occur and affect the achievement of strategy and business.
THE ROLE OF THE INTERNAL AUDIT FUNCTION IN ERM
EXTERNAL AUDIT AS AN INDEPENDENT SOURCE OF KEY RISK IDENTIFICATION
Proactive audit committees recognize that the external auditor can serve as a rich source of risk information that can assist the audit committee in challenging the completeness of risk inventories prepared by management. External auditors recognize that this contribution is a value-added activity for their clients and respond with greater dialogue about key risks when participating in executive sessions with the audit committee.
ERM IMPLEMENTATION STRATEGIES
Most ERM proponents believe there is no “one size fits all” approach to enterprise risk management. To accomplish these objectives, there are certain implementation strategies that can help the board and the senior executives delegate responsibility for the ERM program in designing and modifying the risk management function.
ROLE OF THE AUDIT COMMITTEE
In addition, the audit committee's focus on compliance with financial reporting rules and auditing standards is not necessarily the best approach for. An example of this phenomenon may be found in the banking industry in the run-up to the 2008–2009 crisis, where the creation of off-balance-sheet entities (structured . investment vehicles and trusts) conformed to applicable accounting guidance but, in hindsight, clearly contributed to the catastrophic escalation of risk that led to financial ruin for a significant number of financial institutions.
ROLE OF THE BOARD
Risk management issues also commonly arise in the context of the work of other committees. For example, the compensation committee is charged with approval and oversight of the incentive compensation arrangements for senior management personnel.
TRAINING
This can be accomplished through reports delivered by the committee charged with risk management oversight and by appropriately summarized versions of the materials provided by senior management and. These visits should allow directors to assess firsthand some of the health and safety, operational, and other risks facing the company much better than a prepared presentation or written communication.
BOARD COMPOSITION
Actual membership on the board is likely to allow for more consistent and timely input from these senior executives to the board. The board's ability to perform its oversight role effectively is largely dependent on the flow of information that occurs among the.
REPORTING
If the board is unsure whether they are receiving sufficient information to discharge their responsibilities, they need to be aggressive in their requests for that data. Senior risk managers and the senior executive team need to be comfortable in informing the board or relevant committee of rapidly emerging risk exposures that require the immediate attention of the board.
COMPLIANCE
CULTURE
ABOUT THE AUTHOR
See “Balancing Risk and Performance with an Integrated Finance Organization—The Global CFO Study 2008,” IBM Global Business Services.
How to Teach Enterprise Risk Management
A Learner-Centered Activities Approach
The course can be adapted to Zoom, Microsoft Share, Black Board Collaborate Ultra, and other online platforms. Using LCA, most of the course's traditional lectures (TL) can be replaced with sessions that summarize observations, present highlights, and confirm and clarify course content.
PEDAGOGIC APPROACHES: INTRODUCING COURSE CONTENT
TRADITIONAL LECTURE
LEARNER-CENTERED TEACHING ( LCT ) FLIPPED-CLASSROOM
As students actively participate, they are likely to alter the direction of the learning process by. It is very tempting to return to the TL, since it is quite another task to be a guide, as “the teacher must move aside, often and regularly” (Weimer 2002).
LEARNER-CENTERED ACTIVITIES (LCAS)
Weimer's (2002) Role of the Teacher, the third of the “Five Key Changes to Practice,” may actually be the more awkward change. The LCAs can be used in any sequence, but some sequential benefits to learning are present.
APPLYING LCA: APPLICATIONS AND ANALYSES
LEARNER-CENTERED ACTIVITIES (LCAS)
Most importantly, notice how content is covered, but not in a TL context where the teacher presents the information.
LCA #1: ERM Introduction
The activity facilitation requires only a few hypothetical examples to encourage creative learning and to get the discussion started. Specifics of the ERM COSO definition may be reinforced in the clarification and conformation session.
LCA #2: ERM Workshop
The student facilitator role is a very abbreviated version of the Useful Facilitation Tips and Tough Spots, which would have been preassigned reading. The LCA workshop activity allows students, especially the group facilitators, to identify with the LCA role of the instructor, which is strikingly similar.
LCA #3: Brief History of Risk Management
LCA #4: ERM and Strategic Risk Management
LCA #5: CRO Role
LCA #6: Risk Assessment
AN: The ERM industry risk portfolio includes a large number of risk events by risk category. Requesting students to identify risk events with the different attributes offers several “using content as a means to learning” benefits.
LCA #7: Key Risk Indicators
Second, it is a precursor to the risk map, as all of the risk events have the same thing in common, probability and severity (but was it a wastebasket, office, floor, or total building fire?). Finally, there are multiple risk events that are a challenge to estimate either the probability or severity, or both.
LCA #8: Decision Risk Management
LCA #9: Scenario Planning
The instructor would facilitate the activity by defining the purpose and scope, and assisting in an understanding of the current status of the event or issue.
LCA #10: Risk Tolerance
LCA #11: Risk Profile
AN: This LCA requires considerably more time so it would be best used as an out-of-class activity.
LCA #12: Quantitative Assessment
LCA #13: ERM Solutions to Challenges
The corresponding heat map demonstration of relative risk control directly follows with the clarification and confirmation session. The difference with the TL exam review is apparent—recording a TL topic study list versus an LCA participative topic analysis.
LCA #14: Market Risk
LCA #15: Credit Risk
LCA #16: Operational Risk
In the TL, the instructor would state, for example, that this chapter provides the answers to fundamental questions such as the following ones, then the instructor might say: “First, let's answer the question of ‘What is operational risk…?’”. AN2: There is always a current risk event in the news, most of which can be searched for, often including videos.
LCA #17: Futures Contracts
Students record the TL respective payoffs to long and short positions when prices change and are expected to replicate the steps with different numbers, and possibly a different futures contract. Students are then asked to Suggest a scenario where the selected futures contract could be Applied, and Critique the financial issue of.
LCA #18: Outsourcing Risk
LCA #19: Academic Research
LCA #20: Applied Risk Assessment
In reviewing Exhibit 5.5, April realized that the percentage of historical events might be used as a probability distribution for future fire loss experience. Multiplying the proportion column by the total number of events, 6,003 in Exhibit 5.5, gives the number of losses in each range.
