Final Research Paper

Through the systematic design of the enterprise risk management framework based on process management, the enterprise risk management logic structure with clear hierarchy from top to bottom is constructed, the business process is refined, the risk links in each business process are identified, and the business processes are identified. The key risk control points, the control requirements of the key risk control points and the risk factors involved in the specific business are implemented in specific departments, and seamlessly interface with the job responsibilities, so that the business process is the link, and the risk management work is gradually solidified and displayed (Mandru, 2016).

ERM has a number of components. The first component is development of risk management strategy. For effective risk management, it is first of all necessary that the organization’s management has an understandable strategy in this area and in the field of corporate governance. Therefore, the oversight of these areas by the board of directors and the management board and the reporting to them are of particular importance. It is equally important to distribute responsibility for managing specific risks among structural units. Executive leadership should play a major role in risk assessment and management. The second component entails embedding risk management system in business processes. Introduction of a risk management system into the business planning process and performance assessment. This will allow you to quickly achieve strategic and operational goals. Risk assessment throughout the enterprise will help identify priorities and identify opportunities for improvement. The third component is optimization of risk management functions. Coordination of risk management activities and compliance with legal requirements eliminates duplication of functions and redundant activities and leads to a reduction in risk associated with risk management, cost reduction, expansion of risk coverage and increases efficiency. Improved control procedures and processes. It is possible to increase the efficiency and reduce the costs of control procedures by optimizing them and focusing on the main business processes, using automated rather than manual control procedures, continuous monitoring of their implementation and achieving key performance indicators. Improving the risk management system, informing stakeholders about the scope of risks. In order to move from a risk avoidance strategy to a willingness to assume the risks of an organization, it will be necessary to establish the position of director of risk management. In addition, management should create an atmosphere conducive to risk management.

Problem Statement

Risk management has been in existence for a long time. In recent years, it has gradually become a hot spot in international concern. In some developed countries, risk management has not only developed rapidly in theory, but many companies have recognized the importance of risk management. Apply risk management to all aspects of business management. Especially after events such as Enron and WorldCom, risk management has become more important to all countries.. Despite the fact that ERM serves to help companies reduce risk, a considerable number of enterprises generally have insufficient awareness of risk management, lack of risk strategy, passive risk management, lack of risk management professionals, and risk management techniques and insufficient funds. The performance is: Enterprise strategy and risk management do not match. There is a need to justify the role of risk management so that companies can adopt it as part of their strategic plans. The paper therefore intends to explore key aspects that justify the role of ERM in companies.

Literature Review

Moshesh, Niemann & Kotzé (2018) conducted study to explore the implementation of ERM in petroleum industries. They considered Enterprise Risk Management (ERM) as one of the strategies for reducing risks. However, the authors are concerned about effectiveness of ERM. To prove this, the researchers evaluated implementation of erm in the supply chain of a petrochemical firm. The findings revealed that when planners do not align plans and measures to different stakeholders, the ERM may not succeed. This means that for effective implementation of ERM, planners should consider the needs of each and every stakeholder. Focusing on SMEs, Hudakova, et al (2018)considers risk management as crucial precursor for competitiveness within small and medium enterprises. It helps such businesses and enterprises cope with the dynamic. They revealed that ERM is key because it allows the managers assess market, financial, economic and personnel risks. They concluded that assessing such risks will bring the situations in better conditions. The article helps in identifying some of the risks that should be considered when doing ERM. However, it is not clear whether the same can be applied to the big corporations.

On the other hand, Saeidi, et al (2019) conducted a study to determine the relationship between the ERM and the competitive advantage. The researchers used Iranian financial institutions as the subjects of the research. The institutions were given surveys and then the responses were analyzed using Partial Least Squares Structural Equation Modelling. They concluded that ERM had a positive relationship with the firms' competitive advantage. They further observed that ERM is even more effective if information technology component is included.

In his study, Su-Mian Peng. (2017) attempted to demonstrate how enterprise risk management can be used in commercial banks. The study revealed that enterprise risk management is crucial because it helps commercial banks see some of the risks that couldn’t have been visible under normal situation. That is why they used the concept of picture fuzzy. He concluded that the ERM is indeed practical in cases where the risks are complex and cannot be determined easily. This is because ERM has some models that can help risk managers to comprehensively identify different types of risks.

A study by Shad, et al (2019) focuses on the sustainability reporting, ERM and business performance. The study was based on the fact that effective adoption of ERM could enhance the business performance. The researchers wanted to determine the nature of effect if sustainability reporting is factored in. This is because they believe that sustainability reporting is critical input for strategic management and corporate planning. They concluded that ERM works well with the sustainable reporting in improving the performance of the company. The findings reinforces the need for managers to consider ERM as a central element in company’s performance. It is upon businesses to identify the suitable framework and use it to adopt ERM.

On the other hand, Ogutu, Bennett & Olawoyin (2018) attempted to compare the traditional and enterprise risk management system. The goal is to determine the nature of gaps and to tell which of the risk management system is better. The study stresses the fact that ERM can be applied in organizational risk planning for human well-being. Based on the findings, it is clear that ERM serves to foster well being of the employees if utilized well. Although it shares some features with traditional risk management system, ERM seems superior and hence it is best for organizations which are planning to improve their risk management system.

Messer (2017) conducted a study on ERM on airport. He started by acknowledging how risky it is to operate an airport. It then hypothesize that one way of strategic planning is to identify, assess and manage risks. This is why the concept of ERM comes in. Messer went on to identify key elements of ERM. Evidently, the ERM is crucial because it can help organization identify both known an unknown risks. It also helps organization prioritize on the risks that should be given much attention. In airport, for example, ERM identified 220 risks. Among these risks, 74 are considered above the risk tolerance level. It can therefore be concluded that ERM is indeed a strategic planning tool. On the other hand, Blaskovich & Taylor (2011) attempted to compare how ERM is viewed theoretically and how it is applied practically so as to determine whether what is found in theoretical realm is applied in practical realm. In theory, it is considered as a tool for assessing, identifying and managing the holistic portfolio of risks facing the entire organization. They concluded that the need for ERM is urgent because of ever-changing business environment. Changing business environment contribute to uncertain and risky environment. ERM is urgent because it promises a structured approach for managers to manage such uncertainties. They however noted that since ERM agitate for holistic risk management, it may not be practical to achieve it. A study by Choi et al (2016) describes the ERM as a systematic and integrated way of managing all risks that organization faces. The study is based on a review of literature review. The researchers identified different risks and their unique mitigation methods. They concluded that each risks is unique and hence need unique intervention measures. This is why ERM, which is systematic way is very crucial in risk management. They also revealed that if ERM is implemented appropriately, it will increase the competitiveness of the organization. However, one thing stressed is that the first thing is to identify unique risks and not to generalize. Similarly, Zhao et al (2013) describes ERM as a strategy used to identify potential events that may affect the entity. It is also a strategy that helps in managing risks within its risk appetite. ERM, based on previous studies, can lead to increased profitability and earnings. It also forms basis for better decision making and is also a strategy for achieving competitive advantage. Focusing on ERM maturity, the researchers reveals that the sophistication of ERM influence its maturity. The focus for the study was the implementation of ERM in construction firms. The study concluded that it is crucial to evaluate the ERM maturity because it will help firms get a clear view of their ERM implementation and come up with ways to improve weak areas.

Chu, et al (2017) evaluated the role of ERM in management of logistics during the peak season when the demand for the manufactured products is so high. The researchers wanted to come up with compound option mechanism that can help manufacturers and logistical system ensure that the demand uncertainty is addressed amicably. They revealed that by coming up with such mechanism, the parties involved (manufacturers and suppliers) can work optimally because it allows manufacturers an option to outsource logistic carriers in event that the demand is too high. Similarly, the outsourcing logistic carrier can use the mechanism to use outside carriers depending on the orders on demand. This means that ERM can be used in solving demand uncertainty risk and can also help in reducing hedging costs.

Discussion

From the findings, it is clear that ERM can be a strategic tool for any company. The literature review demonstrated that appropriate implementation of ERM gives a company competitive advantage. However, it is stressed that the implementation is often a challenge. Therefore I recommend ERM to any company aspiring to do great things. Risk management must be integrated into the processes of the organization, that is, it should not be conceived as an isolated activity or whose responsibility falls only on some employees. It is the duty of all the members of the organization, especially in the management area, to design and execute processes that contemplate the risks that the organization faces.

References