Enterprise Risk Management (ERM)

Enterprise Risk Management (ERM)

Table of Contents

Introduction3

Discussion3

Internal Environment5

Objective Setting5

Event Identification6

Risk Assessment6

Risk Response7

Control Activities7

Information and communication7

Monitoring8

Relationship of Components and objectives8

Effectiveness8

Limitations9

Conclusion9

Enterprise Risk Management (ERM)

Introduction

Risk management pertains to stabilizing the effects of turbulent environment. Risk is a chance that an unfavourable event will occur, and uncertainty is the gap between the level of information required to take the decision and information available. The aim of risk management is to hedge this risk by acquiring information from various sources in the environment and implementing solutions that optimize the performance of the enterprise. The idea is that, every enterprise exists to provide value to its stakeholders. It is a fact that all enterprises face environment of uncertainty and this very fact presents a challenge to the firm's management, to determine how much uncertainty to accept, in the face of delivering superior value to customers. The new dimension and the proposition are not to meet the expectation of the customer, but to exceed it.

Discussion

The Buncefield depot's management seems to have missed one technical aspect of the site, which proved to be of greater loss to themselves and to their stakeholders, especially Heathrow airport. Any enterprise related to oil businesses, are always at the point of the spear for criticism by various community members. Consider the case BP's Deep water incident in Gulf of Mexico. Seeping of oil in sea caused so many losses, the company faced criticism for not doing good enough. This is the new world, mass media and digital media have proliferated the information in masses. This type of incident present greatest challenge to the firm's management.

Uncertainty is a double edge sword. While on one hand it can present a risk to the company in the shape of unexpected unfavourable outcomes (Haimes, &Yacov,1998), while on the other hand, it can provide an opportunity for the company to explore the environment and deal with it better than others and successfully deliver superior value to stakeholders. The reactive approach to elements of the environment is a gone case now, however, no matter how much an enterprise strives to know about the future, there still be unexpected outcomes, but relying totally on reactive approach is not feasible in today's competitive environment. Management sets strategy and objectives in an attempt to maximize value and design optimal fit between the environment risk and opportunities, and firm's resources. Enterprise risk management encompasses aligning risk appetite and strategy: under the ERM, management considers the appetite of entity in evaluating strategies alternatives, setting alternatives, related objectives and developing a mechanism to effectively manage the related risk. It further works on reducing the operational risks and losses (Celent,2006). The Buncefield depot's management failed to recognize the danger of failure in filling compartment. Provided the management had made analysis of it, the situation would have been controlled. Seizing the opportunity and identify multiple risk to effectively manage them. This all with an aim of deploying capital in an effective manner. As mentioned earlier that no matter how much the enterprise tries to ...