Enterprise Risk Management (ERM) - Explained
What is Enterprise Risk Management?
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Table of ContentsWhat is Enterprise Risk Management?How does Enterprise Risk Management Work?Academic Research on Enterprise risk management (ERM)
What is Enterprise Risk Management?
Enterprise risk management (ERM) is a plan-based, enterprise approach to identifying and mitigating risks. ERM systems are tailored to a specific industry. The commonality, however, is that it involves identifying and developing a plan of action for avoiding or dealing with said risks.
Back To: INSURANCE & RISK MANAGEMENT
How does Enterprise Risk Management Work?
ERM is common to various industries, including finance, banking, manufacturing, services, energy, etc. Project managers and other experts work with ERM awareness to assess the risk relevant to their groups or industries; prioritize those risks; and make knowledgeable decisions on how to deal with them. The risk control plans they devise estimate the effect of various risks and outline possible responses. For instance, the Environmental Protection Agency requires facilities to properly address potential risks and develop plans for what they will do if an incident occurs. Groups that efficiently control their risks also adopt recurring practices to control the potential risks that they have mitigated. In many situations, new positions and designations are created and assigned for this purpose. In developing ERM tasks, agencies must look to both negative and positive risks.
Academic Research on Enterprise risk management (ERM)
- Enterprise risk management: An empirical analysis of factors associated with the extent of implementation, Beasley, M. S., Clune, R., & Hermanson, D. R. (2005). Journal of accounting and public policy,24(6), 521-531. This paper focuses on the importance of Enterprise Risk Management in risk assessment by companies and investigates the absence of research on factors associated with the implementation of ERM. This paper examines the factors associated with the stage of ERM implementation at a variety of US and international organizations using data gathered from 123 organizations.
- The determinants ofenterprise risk management: Evidence from the appointment of chiefriskofficers, Liebenberg, A. P., & Hoyt, R. E. (2003). Risk Management and Insurance Review,6(1), 37-52. This paper examines the incorporation of ERM tactics by risk assessment managers in companies. This study provides an initial attempt at identifying the determinants of ERM adoption using samples from firms that assigned Chief Risk Officers (CROs) to assess company risk level.
- The value ofenterprise risk management, Hoyt, R. E., & Liebenberg, A. P. (2011). Journal of risk and insurance,78(4), 795-822. The objective of this study is to measure the extent to which specific firms have implemented ERM programs and, then, to assess the value implications of these programs. This study focuses on U.S. insurers in order to control for differences that might arise from regulatory and market differences across industries.
- The effect of corporate governance on the use ofenterprise risk management: Evidence from Canada, Kleffner, A. E., Lee, R. B., & McGannon, B. (2003). Risk Management and Insurance Review,6(1), 53-73. This article examines the use of enterprise risk management (ERM) by companies in Canada, the characteristics that are associated with the use of ERM, what obstacles companies face in implementing ERM, and what role, if any, corporate governance guidelines have played in the decision to adopt ERM. Samples are obtained from the responses to a mail survey sent to Canadian Risk and Insurance Management Society members as well as telephone interviews with 19 of the respondents.
- Enterprise risk managementand firm performance: A contingency perspective, Gordon, L. A., Loeb, M. P., & Tseng, C. Y. (2009). Journal of Accounting and Public Policy,28(4), 301-327. This article explores the concept of ERM, and the reasons for its creation. The basic argument presented in this paper is that the relationship between ERM and firm performance is contingent upon the appropriate match between ERM and five different factors mentioned in the text. This paper further proposes that firms should consider the implementation of an ERM system in conjunction with contextual variables surrounding the firm.
- Enterprise risk management, Coso, I. I. (2004). Enterprise risk management.Integrated Framework.
- Doesenterprise risk managementincrease firm value?, McShane, M. K., Nair, A., & Rustambekov, E. (2011). Journal of Accounting, Auditing & Finance,26(4), 641-658. This paper analyses the absence of quality research on the effectiveness of enterprise risk management (ERMs). Using Standard and Poors newly available risk management rating, the authors find evidence of a positive relationship between increasing levels of TRM capability and firm value but no additional increase in value for firms achieving a higher ERM rating. Considering these results, the authors suggest directions for future research.
- The organizational dynamics ofenterprise risk management, Arena, M., Arnaboldi, M., & Azzone, G. (2010). Accounting, Organizations and Society,35(7), 659-675. This paper explores the organizational dynamics of Enterprise Risk Management (ERM).
- Enterprise risk management: a DEA VaR approach in vendor selection, Wu, D. D., & Olson, D. (2010). International Journal of Production Research,48(16), 4919-4932. This paper presents the development and current status of enterprise risk management (ERM), with a demonstration of how risk modelling can be applied in supply chain management. The paper starts with a discussion of the advanced ERM technology, i.e. value-at-risk (VaR) and develop DEA VaR model as a new tool to conduct risk management in enterprises.
- Enterprise risk management: Theory and practice, Nocco, B. W., & Stulz, R. M. (2006). Journal of applied corporate finance,18(4), 8-20. In this paper, the authors begin by arguing that a carefully designed ERM program can be a source of longrun competitive advantage and value through its effects at both a macro or companywide level and a micro or businessunit level. Among other issues, the authors discuss how a company should assess its risk appetite, measure how much risk it is bearing, and decide which risks to retain and which to transfer to others.
- Enterprise risk management: coping with modelriskin a large bank, Wu, D., & Olson, D. L. (2010). Enterprise risk management: coping with model risk in a large bank.Journal of the Operational Research Society,61(2), 179-190. This paper demonstrates support to risk management through validation of predictive scorecards for a large bank. The bank developed a model to assess account creditworthiness. The model is validated and compared to credit bureau scores. Alternative methods of risk measurement are compared.