Enterprise risk management Questions and Answers 100% Solved correctly

enterprise risk management defintion - A process used by the board of direct management and personnel across all aspects of operation designed to identify potential events and management risks within the business appetite ERM - A. Doesn't look at lost, it looks at business opportunity B. unique to each business C. plan for each organization and will change as it evolves with the company and environment Purpose of ERM - 1. To reduce unacceptable performance variability. 2. Align and integrate the varies risk management views within the organization. 3. Build confidence of investment community and your stakeholders 4. Enhance corporate governance--strength Board oversight, forces senior management oversight, clarifies risk management roles and responsibilities, lets your employees know what's important to the company. 5. Successfully respond to a changing business environment 6. Align strategy and corporate culture Ways to look at ERM and potential issues - 1. Physical assets (land, building, inventory) Issue: unauthorized use, inefficient use, catastrophic loss, unacceptable costs 2.Financial assets (cash, receivables, equity, assessment) Issue: poor economic performance, unacceptable/unexpected losses, insufficient liquidity, in efficient use 3. Employee/Supplier assets Issue: Talent shortages, work stoppages, loss of morale, poor quality, excessive cost 4. Customer assets (customers, channels)Issue: pervasive quality failure, significant losses of key customers, loss of markets 5. Organizational assets (Leadership, knowledge, values, reputation, innovation, strategy) Issue: Lack of leadership, unclear strategies, illegal response/act, inadequate information for decisionmaking, business interruption, brand erosion and reputation loss Most ERM takes 3 to 5 years to employment (what are the best steps) - 1. Identify and prioritize the organization's risk (where you want to be) 2. Define your current state risk capability 3. Analyze and articulate the difference between 2 and 3, what the gap is 4. Develop a plan to fill the gap--does it make economic sense to bridge the gap 5. Update for change and advance 6. Provide oversight and necessary facilitation Risk appetite Imply 3 things - 1. Senior management philosophy 2. Organizational culture 3. Operation style Risk appetite vs. risk tolerant - 1. Risk appetite is strategic when Risk tolerance is tactical 2. Risk appetite relates to business model where as Risk tolerance focus more on the organizational objective 3. Every organization has a special risk appetite and differs within each company Avoid - A. Lack of support from the top of the organization B. lack of stakeholders ownership and buyer C. failure to integrate to ERM program D. getting lost in details E. failure to define the roles in responsibility F. failure to appreciate roles in difference G. failure to manage conflicts of interest1. different goals of different companies and they conflict with each other H. failure to operate ERM across entire organization 1. does not mean response has to be identical everywhere I. head out organization capability Have to consider these 8 things when looking at alternatives: - 1. managements objectives and strategies 2. Risk return tradeoffs 3. Risk management capabilities 4. Time horizon 5. financing 6. Residual risk 7. Avoid inverted risk taking 8. Risk manageability