Risk management ranks among the top contemporary practises in management. It can be attributed to the recent developments in managerial practise that eventually lead to strengthening of institutions through provisions such as the Sarbanes Oxley Act. Risk management in the firm has crystallised into the Enterprise Risk Management which shall dominate the better part of this paper. In overall, the paper analyses the benefits of risk management through the Enterprise Risk Management.
Enterprise Risk Management initiation is propelled by a number of diverse forces that have coerced together with a common purpose of managing risk in firms. The forces range from corporate governance requirements, need to acquire actual understanding of strategic and corporate risks, the competitive advantage derived from management of risk, and regulatory pressure from rating agencies. Take for instance, corporate governance requirements, it is now necessary for management to have a clear framework of management of risks. In addition, management must take a deliberate step at forecasting possible risks and put in place cushioning measures. This approach also gives the company overall competitive advantage in a market that is already too murky and does not allow for mistakes. Overall these factors have conspired to force an implementation of the initiation of the Enterprise Risk Management.
The Enterprise Risk Management could provide a persistent benefit to the firm. This can be attributed to its features which combine to ensure a state of perpetuity in the outcomes of risk management. In overall the inclusive approach ensures that the entire organisation is involved in the risk management. This could be the reason for the persistent benefits. The approach takes into consideration the board, the chief executive office, the chief financial officer, and the internal audit committee. This approach is devoid of any conflict for lack of a common objective.
The Enterprise Risk Management program is predicated on five key elements. This is, however, not to say other elements are not essential for the successful implementation. These elements are briefly discussed as follows. A high enterprise risk level information has to be maintained. This means the stakeholders must take cognisance of every essential statistic and piece of information that affects risk. The firm must in the same vein hold a risk terminology and set of a standard that is above board. This goes towards ensuring the management is properly versed of circumstances and factors in the firm that contribute to risk. In addition, the firm need to quantify risks to a greater extent. This means the firm is compelled to give more detail and analysis towards risk. Lastly, the compliance costs must be easily tracked and the cost of non-compliance equally reduced. This works on the premise that the firm engages a gear that reverses any non-compliance activities. In that breadth, the employees must have an understanding of what accountability entails.
The development of Enterprise Risk Management program is procedural and characterised by a number of challenges that require time to work on. As the author note, the program is still in its infancy stage. However, even with the challenges being grappled with, companies that have started it have a number of benefits to write home about. The three main benefits are the fact that decision making is better informed, having incorporated risk knowledge. The fact that managerial operations and decisions are pursued in consensus and the lastly the fact that governance practises for the firm is smoother. These and many more benefits continue to put a strong case for the application of the Enterprise Risk Management program.
References
Gates, S. (2006). "Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice". Geneva: Conférence Internationale de Management Stratégique, Annecy. Retrieved from http://www.strategie-aims.com/events/conferences/8-xveme-conference-de-l-aims/communications/2175-incorporating-strategic-risk-into-enterprise-risk-management/download
Stulz, R. M. (2008). Rethinking Risk Management. Journal of Applied Corporate Finance, 8-25. Retrieved from https://www.google.co.ke/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CEkQFjAD&url=http%3A%2F%2Fwww.cob.ohio-state.edu%2Ffin%2Ffaculty%2Fstulz%2Fpublishedpapers%2FRethinking%2520Risk%2520Management.pdf&ei=EPpCUdD4BOqL0AWD5YDIDg&usg=AFQjCNGxJrccTn56bCHBbT
