Enterprise Wide Risk Management

RISK MANAGEMENT: THE CASE FOR AN ENTERPRISE WIDE APPROACH



Enterprise Risk Management is a relatively new term that is quickly becoming viewed as the ultimate approach to risk management. Since the mid-1990s, enterprise risk management has emerged as a concept and as a management function within corporation.(Geneva)   Enterprise-wide risk management looks within and across business lines and activities of the organization as a whole to consider how one area of the firm may affect the risks of other business lines and the enterprise as a whole. This approach is in marked contrast with the silo approach to risk management, which considers the risks of activities or business lines in isolation, without considering how those risks interrelate and affect other business lines. While individual business lines or activities should continue to enhance their own risk-management practices, as organizations gain in complexity it is important to provide the critical oversight that can come only from an enterprise-wide risk-management approach.



According to the Casualty Actuarial Society (CAS), enterprise risk management defined as “ the process by which organizations in all industries assess, control, exploit, finance and monitor risks from all sources for the purpose of increasing the organization’s short and long term value to its stakeholders.’’ A truly holistic, integrated, future-focused and process oriented approach helps an organization manage all key business risks and opportunities with the intent of maximizing shareholder value for the enterprise as a whole. (KPMG,2001)



Furthermore, to understand enterprise risk management within organization, it is important to recognize the distinction between risk measurement and risk management. Risk management entails the quantification of risk exposures and quantification can be a variety of forms – value-at-risk, earning-at-risk, stress scenario analysis, duration gaps-depending on...