Black Swans and White Knights: Risks of Operating in a VUCA and Global Environment
Global Businesses operate in an international environment that is volatile, unpredictable, uncertain, and accelerated. The term VUCA or Volatility, Uncertainty, Complexity, and Ambiguity is used to describe to the global environment in which multinational firms operate. In addition, a PESTLE or Political, Economic, Social, Technological, Legal, and Environment framework can also be applied to understand […]
Organization Ethics – Meaning and its Importance
An organization is formed when individuals from different backgrounds and varied interests come together on a common platform and work towards predefined goals and objectives. Employees are the assets of an organization and it is essential for them to maintain the decorum and ambience of the workplace. What is Organization Ethics ? The way an […]
Top Down Decision Making versus Bottom Up Decision Making
The previous articles touched upon the role of hierarchy in decision making. In this article, we consider whether top down decision or bottom up decision making is effective. To consider this comparison it would be useful to think of top down decision making as being akin to someone sitting on top of a tree telling […]
ERG Theory of Motivation
To bring Maslow’s need hierarchy theory of motivation in synchronization with empirical research, Clayton Alderfer redefined it in his own terms. His rework is called as ERG theory of motivation. He recategorized Maslow’s hierarchy of needs into three simpler and broader classes of needs: Existence needs- These include need for basic material necessities. In short, […]
Critical Success Factors for Virtual Teams
With more organizations realizing the higher ROI associated with the virtual work environment, virtual teams are scoring over traditional teams. The business case for virtual teams talks about the cost savings, leveraging global talent, increase in productivity and higher profits. Virtual teams improve the bottom line of the business. Just like a tree gives tasty […]
The CAS committee on Enterprise risk management has given the following definition of the same - ‘The discipline by which any organization in any industry assesses, controls, exploits, finances and monitors risk from all the sources for the purpose of increasing organizations short-term and long-term value to its stakeholders’.
In simpler terms enterprise risk management includes all the tools and processes employed by an organization to manage and control risks and grab more opportunities in the market place. It provides a framework for better risk management.
Enterprise risk management starts with identification of events that are of relevance to the organization, the risks and opportunities. These events are evaluated on the basis of their impact and probability of occurrence and a strategy is designed to counter or meet the same; all this to add more value to stakeholders.
It is an approach where in risk is looked upon as an opportunity and at the same time is monitored such that it may not affect an organization to a large extent.
Typically the following four strategies, called as ‘risk response strategy’ are adopted by organizations while facing a risk.
Conceptual Framework: ERM in the table below has been conceptualized in two dimensions, one showing the types of risk and other the various risk management process steps.
| ERM Framework | ||||
| Process Steps | Types of Risk | |||
| Hazard | Financial | Operational | Strategic | |
| Establish Context | ||||
| Identify Risks | ||||
| Analyze/Quantify Risks | ||||
| Integrate Risks | ||||
| Assess/Prioritize Risks | ||||
| Treat Risk | ||||
| Monitor and Review | ||||
A brief explanation of the various kinds of risk is as follows:
Hazard Risk: Natural disasters, liability damages, Property damages due to fire, tornado etc, injury or illness to its employees.
Financial Risk: Risks like foreign exchange risk, commodity risk, pricing risk, asset risk, liquidity risk.
Operational Risk: labor relations, customer satisfaction, product failure etc.
Strategic Risk: Competition, fluctuation in demand and market price, regulatory and political trends, social trend, capital availability.
The other dimension of the table carries the steps of entire risk management process. The process starts from an understanding the conditions in which organization operates (Establishing context). In the next stage various threats are identified (Identifying threats) proceeded by analysis of risks.
The risks are then integrated and prioritized. In the penultimate stage strategies are designed for controlling risks (Treat Risk). Finally, the risk environment is continually monitored and the strategies are evaluated.
Organizations have various departments and functions that identify, manage and deal with different risks. These risk functions or departments vary in capability and coordinates in a unique fashion with other functions. The entire task of enterprise risk management revolves around improving or enhancing this coordination. Finally stakeholders need a cohesive picture which is provided as the output of enterprise risk management. ERM thus, enables and improvises organization’s ability to deal with risks better.
Your email address will not be published. Required fields are marked *
