Organizational Diversity – Fostering an Inclusive Environment
The question that is uppermost on business leaders’ mind is how to foster an inclusive environment as the current environment in the business world is about not tolerating harassment and discrimination. For instance, in recent years, there has been some high profile cases involving senior management figures in the US and in India in matters […]
Advantages and Disadvantages of Virtual Teams
Virtual team is an emerging new-age trend with followers across business sectors. Just like any other new trend, virtual team also has to undergo strict scrutiny of researchers to weigh its advantages and disadvantages before being accepted by the professionals. The advantages and disadvantages of virtual teams can be looked upon from three levels – […]
Variations in Cash Flow Models
We are now aware of how to use the basic single stage models for both free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). It is now time to look into more advanced models which involve two or more stages for which cash flows will be predicted. Now, we need […]
Managing Diversity at the Workplace
The previous articles in this module discussed the ways and means of attracting diversity and how to recruit diverse teams. This article discusses how to manage diverse teams and to ensure that diversity is actualized in practice as opposed to merely paying lip service to the concept. Many organizations proclaim that they are committed to […]
How to Win at Workplace Politics
Irrational behavior of an individual against his colleague to tarnish his image and spoil his reputation at the workplace refers to politics. Office Politics is something which is inevitable. In every organization you would definitely find someone or the other indulged in politics to make his position secure at the workplace. Employees are involved in […]
The CAS committee on Enterprise risk management has given the following definition of the same - ‘The discipline by which any organization in any industry assesses, controls, exploits, finances and monitors risk from all the sources for the purpose of increasing organizations short-term and long-term value to its stakeholders’.
In simpler terms enterprise risk management includes all the tools and processes employed by an organization to manage and control risks and grab more opportunities in the market place. It provides a framework for better risk management.
Enterprise risk management starts with identification of events that are of relevance to the organization, the risks and opportunities. These events are evaluated on the basis of their impact and probability of occurrence and a strategy is designed to counter or meet the same; all this to add more value to stakeholders.
It is an approach where in risk is looked upon as an opportunity and at the same time is monitored such that it may not affect an organization to a large extent.
Typically the following four strategies, called as ‘risk response strategy’ are adopted by organizations while facing a risk.
Conceptual Framework: ERM in the table below has been conceptualized in two dimensions, one showing the types of risk and other the various risk management process steps.
| ERM Framework | ||||
| Process Steps | Types of Risk | |||
| Hazard | Financial | Operational | Strategic | |
| Establish Context | ||||
| Identify Risks | ||||
| Analyze/Quantify Risks | ||||
| Integrate Risks | ||||
| Assess/Prioritize Risks | ||||
| Treat Risk | ||||
| Monitor and Review | ||||
A brief explanation of the various kinds of risk is as follows:
Hazard Risk: Natural disasters, liability damages, Property damages due to fire, tornado etc, injury or illness to its employees.
Financial Risk: Risks like foreign exchange risk, commodity risk, pricing risk, asset risk, liquidity risk.
Operational Risk: labor relations, customer satisfaction, product failure etc.
Strategic Risk: Competition, fluctuation in demand and market price, regulatory and political trends, social trend, capital availability.
The other dimension of the table carries the steps of entire risk management process. The process starts from an understanding the conditions in which organization operates (Establishing context). In the next stage various threats are identified (Identifying threats) proceeded by analysis of risks.
The risks are then integrated and prioritized. In the penultimate stage strategies are designed for controlling risks (Treat Risk). Finally, the risk environment is continually monitored and the strategies are evaluated.
Organizations have various departments and functions that identify, manage and deal with different risks. These risk functions or departments vary in capability and coordinates in a unique fashion with other functions. The entire task of enterprise risk management revolves around improving or enhancing this coordination. Finally stakeholders need a cohesive picture which is provided as the output of enterprise risk management. ERM thus, enables and improvises organization’s ability to deal with risks better.
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