Chapter 1 & 2: What and why ERM?

Question 1

Defining ERM HIV TRIMS CAPC

Answer 1

Risk management approach containing the following elements:
Holistic approach
o Common risk measures and limits, language and culture in place
o Approach consistent across organization
o Portfolio level management: Interaction and concentrations considered
o Collaboration between all decisionmakers and experts
Integrated in all operations and strategies
Value adding
o Up- and downside considered
o A controlled risk taking environment is created
Top-down approach
o Board > CRO > RMF > Line Management
o Risk frameworks and controls created
Risk responses are in place
o Avoid, Retain, remove, reduce, transfer
Identification of risks are appropriately done
o Common risk language
o Risk taxonomy approach
Measurement to ensure proper aggregation of risks can be done
o Quantifiable and unquantifiable
o Risk measurement approaches
o Likelihood and financial impact
o Distribution of losses
Structured approach
o ID and assessment
o Treatment
o Monitor – continual improvement
o Reporting

Question 2

The components of ERM FICMMAR

Answer 2

•	Framework and Governance
o	Internal, statutory, advisory and propriety frameworks
o	Organisational structure and culture
•	Identification
o	Data and modelling
•	Classification
o	Risk taxonomy
•	Monitoring and Communication
o	Common risk language
•	Measurement
o	Data and modelling
o	Risk measurement approaches
•	Assessment
•	Responses (management)

Question 3

The benefits of ERM to a business BOI TEELS CIC CRIMS VSM:

Answer 3

• Business performance improved CRIMS VSM
o Capital is managed more efficiently
o Risk response are more cost efficient (transfer, insure and pricing of risk) and rapid
o Improved loss management
o Management efficiency is better measured: Better performance goals can be set
o Security of jobs increased
o Volatility of earnings reduced
o Shareholder returns maximise
o Mandate of management
• Operational effectiveness of business improved CIC
o Consistency is risk management approach
o Sharing of information of risk
o Central co-ordination or risk management activities
• Senior management are more informed about TEELS:
o Trade-off between risk and return is better asses
o External factors’ impact on business understood
o Exposure to risks better understood
o Link between business growth and risk management understood
o Strategy and risk appetite aligned