B1 - M2: ERM Frameworks Flashcards
Purpose of Enterprise Risk Management (ERM) Framework
Assist organizations in developing a comprehensive response to risk management
How does management affect an organizations value?
“make it CEPR”
- Creation: benefit > resource cost +NPV
- Preservation: sustainable operating profit
- Erosion: cost > benefit -NPV
- Realization: received by stakeholders - stock appreciation or dividends
How does management manage risk and create value
“CCPIS”
- Culture: core values
- Capabilities: competitive advantage - exploit it
- Practices: continually applied at all levels
- Integration with Strategy: why do they exist? - mission // what’s your vision/strategy
How are value and risk appetite related?
- Directly
- risk assumed (independent variable)
- expected risk (dependent variable)
Components of ERM
5 - “GO PRO”
- Governance and culture: tone at the top
- strategy and Objective setting: mission/vision - define risk appetite
- Performance: evaluate, identify, and respond to risks using ARTs
- Review and revision: assess substantial changes, pursue improvements
- info, communication, and reporting (Ongoing): - obtain FACTs
Principles of Governance and Culture
“DOVES”
- Desired culture
- board Oversight
- core Values: tone at the top
- attract, retain, develop Employees
- operating Structure
Principles of Strategy and Objective-Setting
“SOAR”
- evaluate Strategies: what is the vision
- formulate Objectives: why do we exist - mission
- Analyze
- define Risk appetite
Principles of Performance
“VAPIR”
- develop portfolio View: parent level
- Assess risk
- Prioritize risk
- Identify risk (events)
- Respond to risks
Principles of Review and Revision
“SIR”
- assess Substantial change
- Improve ERM
- Review risk and performance: How did we do managing risk
Principles of Info, Communication, and Reporting (Ongoing)
“TIP”
- leverage information Tech
- communicate risk Info
- report on risk, culture, and Performance
What does the ERM framework do?
assist management identify, address, and manage risk
What is Sharing?
insuring against losses or entering into join ventures as a way to mitigate risk
What is organizational sustainability
ability of an entity to withstand the impact of large-scale events
What is residual risk?
- risk to an organization AFTER management takes action to reduce the likelihood of impact of a negative event
- RR = inherent risk - impact of mgmt actions
Statistical risk ranking methodolgoy
organize product of (likelihood x severity) in descending order
