Enterprise risk management
Enterprise risk management (ERM) in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives (threats and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring process. By identifying and proactively addressing risks and opportunities, business enterprises protect and create value for their stakeholders, including owners, employees, customers, regulators, and society overall. ERM can also be  described as a risk-based approach to managing an enterprise, integrating concepts of internal control, the Sarbanes–Oxley Act, data protection and strategic planning. ERM is evolving to address the needs of various stakeholders, who want to understand the broad spectrum of risks facing complex organizations to ensure they are appropriately managed. Regulators and debt rating agencies have increased their scrutiny on the risk management processes of companies. According to Thomas Stanton of Johns Hopkins University, the point of enterprise risk management is not to create more bureaucracy, but to facilitate discussion on what the really big risks are. ERM  frameworks defined. There are various important ERM frameworks, each of which describes an approach for identifying, analyzing, responding to, and monitoring risks and opportunities, within the internal and external environment facing the enterprise. Management selects a "risk response strategy" for specific risks identified and analyzed, which may include: Monitoring is typically performed by management as part of its internal control activities, such as review of analytical reports or management committee meetings with relevant experts, to understand how the risk response strategy is working and whether the objectives are being achieved. Casualty Actuarial Society framework. In 2003, the Casualty Actuarial Society  (CAS) defined ERM as the discipline by which an organization in any industry assesses, controls, exploits, finances, and monitors risks from all sources for the purpose of increasing the organization's short- and long-term value to its stakeholders." The CAS conceptualized ERM as proceeding across the two dimensions of "risk type" and "risk management processes." The risk types and examples include: The risk management process involves: COSO ERM framework. The COSO "Enterprise Risk Management-Integrated Framework" published in 2004 (New edition COSO ERM 2017 is not Mentioned and the 2004 version is outdated) defines ERM as a "…process, effected  by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives." The COSO ERM Framework has eight Components and four objectives categories. It is an expansion of the COSO Internal Control-Integrated Framework published in 1992 and amended in 1994. The eight components are: The four objectives categories - additional components highlighted - are: ISO 31000 : the new International Risk Management Standard. ISO 31000 is  an International Standard for Risk Management which was published on 13 November 2009. An accompanying standard, ISO 31010 - Risk Assessment Techniques, soon followed publication (December 1, 2009) together with the updated Risk Management vocabulary ISO Guide 73. RIMS Risk Maturity Model. The RIMS Risk Maturity Model (RMM) for Enterprise Risk Management, published in 2006, is an umbrella framework of content and methodology that detail the requirements for sustainable and effective enterprise risk management. The RMM model consists of twenty-five competency drivers for seven attributes that create ERM’s value and utility in an organization. The 7 attributes are: The  model was developed by Steven Minsky, CEO of LogicManager, and published by the Risk and Insurance Management Society in collaboration with the RIMS ERM Committee. The Risk Maturity Model is based on the Capability Maturity Model, a methodology founded by the Carnegie Mellon University Software Engineering Institute (SEI) in the 1980s. Implementing an ERM program. Goals of an ERM program. Organizations by nature manage risks and have a variety of existing departments or functions ("risk functions") that identify and manage particular risks. However, each risk function varies in capability and how it coordinates with other risk functions. A central goal  and challenge of ERM is improving this capability and coordination, while integrating the output to provide a unified picture of risk for stakeholders and improving the organization's ability to manage the risks effectively. Typical risk functions. The primary risk functions in large corporations that may participate in an ERM program typically include: Common challenges in ERM implementation. Various consulting firms offer suggestions for how to implement an ERM program. Common topics and challenges include: Internal audit role. In addition to information technology audit, internal auditors play an important role in evaluating the risk-management processes of an organization and  advocating their continued improvement. However, to preserve its organizational independence and objective judgment, Internal Audit professional standards indicate the function should not take any direct responsibility for making risk management decisions for the enterprise or managing the risk-management function. Internal auditors typically perform an annual risk assessment of the enterprise, to develop a plan of audit engagements for the upcoming year. This plan is updated at various frequencies in practice. This typically involves review of the various risk assessments performed by the enterprise (e.g., strategic plans, competitive benchmarking, and SOX 404 top-down risk assessment), consideration of prior audits , and interviews with a variety of senior management. It is designed for identifying audit projects, not to identify, prioritize, and manage risks directly for the enterprise. Current issues in ERM. The risk management processes of corporations worldwide are under increasing regulatory and private scrutiny. Risk is an essential part of any business. Properly managed, it drives growth and opportunity. Executives struggle with business pressures that may be partly or completely beyond their immediate control, such as distressed financial markets; mergers, acquisitions and restructurings; disruptive technology change; geopolitical instabilities; and the rising price of energy. Sarbanes-Oxley Act requirements. Section 404  of the Sarbanes-Oxley Act of 2002 required U.S. publicly traded corporations to utilize a control framework in their internal control assessments. Many opted for the COSO Internal Control Framework, which includes a risk assessment element. In addition, new guidance issued by the Securities and Exchange Commission (SEC) and PCAOB in 2007 placed increasing scrutiny on top-down risk assessment and included a specific requirement to perform a fraud risk assessment. Fraud risk assessments typically involve identifying scenarios of potential (or experienced) fraud, related exposure to the organization, related controls, and any action taken as a result. NYSE corporate governance  rules. The New York Stock Exchange requires the Audit Committees of its listed companies to "discuss policies with respect to risk assessment and risk management." The related commentary continues: "While it is the job of the CEO and senior management to assess and manage the company’s exposure to risk, the audit committee must discuss guidelines and policies to govern the process by which this is handled. The audit committee should discuss the company’s major financial risk exposures and the steps management has taken to monitor and control such exposures. The audit committee is not required to be the  sole body responsible for risk assessment and management, but, as stated above, the committee must discuss guidelines and policies to govern the process by which risk assessment and management is undertaken. Many companies, particularly financial companies, manage and assess their risk through mechanisms other than the audit committee. The processes these companies have in place should be reviewed in a general manner by the audit committee, but they need not be replaced by the audit committee." ERM and corporate debt ratings. Standard & Poor's (S&P), the debt rating agency, plans to include a series of questions about risk management in  its company evaluation process. This will rollout to financial companies in 2007. The results of this inquiry is one of the many factors considered in debt rating, which has a corresponding impact on the interest rates lenders charge companies for loans or bonds. On May 7, 2008, S&P also announced that it would begin including an ERM assessment in its ratings for non-financial companies starting in 2009, with initial comments in its reports during Q4 2008. IFC Performance Standards. International Finance Corporation Performance Standards focus on the management of Health, Safety, Environmental and Social risks and impacts. The third  edition was published on January 1, 2012 after a two-year negotiation process with the private sector, governments and civil society organizations. They have been adopted by the Equator Principles Banks, a consortium of over 118 commercial banks in 37 countries. Data Privacy. Data privacy rules, such as the European Union's General Data Protection Regulation, increasingly foresee significant penalties for failure to maintain adequate protection of individuals' personal data such as names, e-mail addresses and personal financial information, or alert affected individuals when data privacy is breached. The EU regulation requires any organization--including organizations located outside the  EU--to appoint a Data Protection Officer reporting to the highest management level if they handle the personal data of anyone living in the EU. Actuarial response. Casualty Actuarial Society. In 2003, the Enterprise Risk Management Committee of the Casualty Actuarial Society (CAS) issued its overview of ERM. This paper laid out the evolution, rationale, definitions, and frameworks for ERM from the casualty actuarial perspective, and also included a vocabulary, conceptual and technical foundations, actual practice and applications, and case studies. The CAS has specific stated ERM goals, including being "a leading supplier internationally of educational materials relating to Enterprise  Risk Management (ERM) in the property casualty insurance arena," and has sponsored research, development, and training of casualty actuaries in that regard. The CAS has refrained from issuing its own credential; instead, in 2007, the CAS Board decided that the CAS should participate in the initiative to develop a global ERM designation, and make a final decision at some later date. Society of Actuaries. In 2007, the Society of Actuaries developed the Chartered Enterprise Risk Analyst (CERA) credential in response to the growing field of enterprise risk management. This is the first new professional credential to be introduced by the  SOA since 1949. A CERA studies to focus on how various risks, including operational, investment, strategic, and reputational combine to affect organizations. CERAs work in environments beyond insurance, reinsurance and the consulting markets, including broader financial services, energy, transportation, media, technology, manufacturing and healthcare. It takes approximately three to four years to complete the CERA curriculum which combines basic actuarial science, ERM principles and a course on professionalism. To earn the CERA credential, candidates must take five exams, fulfill an educational experience requirement, complete one online course, and attend one in-person course on professionalism. CERA Global. Initially all CERAs  were members of the Society of Actuaries but in 2009 the CERA designation became a global specialized professional credential, awarded and regulated by multiple actuarial bodies.