Enterprise Risk Management Case Study

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Recommended: Companies and the Sarbanes-Oxley Act

The Risk Management Association (RMA) defines Enterprise Risk Management (ERM) as the “capability of an organization to understand, control, and articulate the nature and level of the risks taken in pursuit of a risk adjusted return” (RMA, 2015). RMA’s Enterprise Risk Management framework illustrates that ERM will provide the answers to eight fundamental questions related to risk (see Appendix, Figure 15.13.1). ERM analyzes internal and external uncertainties faced by all areas of the company, avoiding silos. Unlike previous risk management frameworks, it considers risk management a business strategy applicable to all key decisions (RIMS, 2015). While ERM may be applied differently across organizations, experts frequently cite two standards. …show more content…

Organizations face risk from many angles, including internal and external financial, infrastructure, reputational and marketplace risks (IRM, 2010). Risks with positive impact are known as opportunities, while risks with negative consequences are called hazards (ISO/IEC, 2008). Risk can impact an enterprise at all levels: strategic, tactical (also known as program or project risk) and operational (IRM, 2010). Proactive risk management allows companies to reduce uncertainty, leading to better business decisions aligned with strategy. Managers can systematically exploit opportunities, and reduce the negative consequences of hazards. ERM provides the insight to answer three simple business questions: “Should we do it? Can we do it? Did we do it?” (RMA, 2015). Additionally, ERM assists in compliance with Sarbanes-Oxley requirements for external reporting, providing the information needed for historical risk reporting and forward-looking risk disclosure (IRM, 2010). In contrast, companies who do not practice risk management must still ultimately respond to risks. The difference is that they are ambushed by surprises, responding to each individual risk as it occurs (Kendrick, 2009). Over time, ignoring risks often leads to missed opportunities and failure to achieve business objectives. risk management

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