Approach to Management of Risk
In present days, innovative approach to management of risk has gained considerable attention. Many influential individuals such as politicians have demanded corporate governance as well as better audit. Traditional approaches to risk management within different organizations have focused on operational risk. Integrated approach of managing risk allows for the integration and coordination of different processes of entrepreneurial risk management through the efficient and effective management of the risks that are typical of processes of businesses while attaining the performance expectations of different stakeholders. The approach to risk management helps in assessing and prioritizing the dangers that are pertinent to operations of different businesses (Xu 2015, p. 769). The lack of inter-connections and communications within the operations of companies result on the concentration to be placed basically on physical with economic elements. Over long duration, organizations have begun to realize that the prominence on management of risk before accumulating value as the command in the ever more spirited markets and fast-varrying business surroundings (Liu, Zou, and Gong 2013, p. 1271). Therefore, primary focus of this report is to examine situation for an approach of enterprise-wide to management of risk in reference to both public and private sectors around global business society.
Approach of Enterprise-wide to management of risk
Peril, as a form of uncertainty, always causes severe implications of finance to business operations and industries around global markets. Managing risk together with doubt has forever been the dispute to any kind of operation among organizations as they endlessly try to do their best for corporate superiority, while at similar moment alleviate risks and reduce possible loses that can cause financial damage. In such regards, business and companies have apprehended the usefulness and requirement of supervising risks on the venture-wide approach (Hyatali and Fai 2016, p. 87). The increasing concern over management of risk is not only regarding organizations, but also society at large and individuals involved in operations. Therefore, risk management is viewed as an essential device that enables the organization to develop towards its goals and objectives. The idea is essential in strengthening the company’s corporate governance and at the same moment to fulfill its obligation towards stakeholders. However, collapse to advance the process of managing risk can result in harsh economic loss and harm to status. Such occurrences will be replicated in assurance as well as belief of stakeholders. The launched of a management concept on enterprise-wide approach is conceptualized in relation to different dimensional models (Goodman 2018, p. 33). These models are always intending to integrate and align corporate strategic objectives, structure of organization, and managerial reporting and procedures of control. As many other different concepts, enterprise-wide model is presented in management of risk by its graphic on three-dimensional cube.
Approach of enterprise-wide to management of risk refers to process essential in identifying as well as focusing on methodically the possible events that symbolizes risks to the accomplishment of planned objective or to chances towards gaining of a competitive advantage. Management of risk in different organization through this approach is essential (Allen and Allison 2018, p. 39). It remains as a vital part of the tactical management of any corporation, while it should be entrenched in the continuing operations of corporation. Some of the broadly referenced guidelines for enterprise-wide approach in risk management include the committee that deals with sponsoring organization. Moreover, significant basics of this approach are evaluation of vital dangers together with execution of appropriate response of danger. Therefore, these risk responses consist of acceptance or risk tolerance, avoidance or termination of the danger, transfer of risk or sharing through insurance, the joint venture or another arrangement. Other responses of risk through enterprise-wide approach include decrease or alleviation of risk through internet managed measures or other activities of avoiding danger (Etges et al., 2018, p. 32). Other important enterprise-wide response to risk management consists of viewpoint of risk or measure of risk and customes of danger. The mentioned aspects are some of the terms of the approach to dangers in operations of organizations and of the quantity of danger that the organization is ready and keen to obtain. All these elements are just some of the vital aspects of governance responsibility.
Overview of approach of enterprise-wide to management of risk
Approach of managing risk through venture-wide differ greatly from the traditional approach of managing risk as the focus is concentrated on strategy of enterprise-wide. For achievement of incorporated management of danger, every corporation needs to evaluate and measure all the dangers that could possibly influence its worth (Clyde-Smith 2014, p. 331). Such strategies remain is the main principle of venture-wide approach to management of danger as it ensures that senior managers are focused in engaging on the uncertainties around the entire asset portfolio of the corporation. Additionally, another concept of this approach relates to the individuals that conduct as well as manages the process of risk management. Although the enterprise-wide approach s the ultimate function of the board of different managers with the support of senior management, it must be noted that for the approach to be enterprise-wide, every worker from each level of the corporation must support the framework of managing risks. However, without support of every individual into the process, the infrastructure of enterprise-wide approach would be worthless. For instance, Hallowell, Molenaar, and Fortunato (2013, p. 117) reported that different companies need to be aware that they will need to be open as well as flexible to any operational changes. Therefore, enterprise-wide approach to risk management can change organizational behavior with the need for creating awareness that concentrates on increasing buy-in as well as eventually driving the receipt of possessions all through the entity.
Enterprise-wide approach on risk management has several benefits in operations of organizations. For instance, it leads to greater awareness concerning the risk that faces any organization and the capacity to respond effectively (de Jongh and Erasmus 2014, p. 21). The model of enterprise-wide also enhances the confidence concerning accomplishments of tactical targets, improving agreement with regulatory, lawful, and covering needs. Another benefit of enterprise-wide approach to management of risk is that it aids in increasing the effectiveness together with efficiency of operations in different organizations. The approach ensures that management is able to focus and motivate their organizations to capitalize on different emerging opportunities. The approach ensures that management of companies is continually concentrating on investing their scares resources in pursuit of promising investments and business operations (Alzahrani, Qureshi, and Thayananthan 2017, p. 906). Therefore, through this approach of managing risks, organizations stay to be capable of managing the business in the face of constantly changing circumstances.
Risk management principles
Management of risk in different organizations remains to be procedure that is undermined by the lay down of principles. Additionally, it requires being hold up by the arrangement that is effective to organization along with its outer setting or framework. An initiative for profitable supervision of risk needs to be balanced to the stage of danger in corporations (Richards 2013, p. 37). It needs to be associated with other operations of corporate, broad in its extent, fixed into custom operations, along with active by being open to altering circumstances. The approach of managing risks through enterprise-wide approach improve the initiative of process to deliver outputs that comprise of compliance with applicable requirement of governance, assurance of stakeholder in regard to the management of danger and improved process of arriving at operational decisions (Smith 2015, p. 56). The impact or advantages associated with such approaches comprise of more efficient operations, efficient tactics, together with efficacious strategy.
The principles of managing risks through enterprise-wide approach can be represented as the list of co-ordinate operations. There exist different alternative prescriptions of this approach, but the components that are usually presented are many (Ogutu, Bennett, and Olawoyin 2018, p. 45). These components consist of recognition or risk identification, evaluation of danger, responding to significant risks, and control of resources, reaction planning, and reporting of risk performance. The other component includes the monitoring of performance of danger and reviewing of the risk management framework. Moreover, risk management goes in hand with enterprise-wide approach principles (Hallowell, Molenaar and Fortunato 2013, p. 119). These principles of enterprise-wide approach include consideration in the context of strategy of business, active risk management, and creation of awareness of risk culture. Other principles consist of comprehensive and holistic approach to management of risk, consideration of a broad range of risk such as strategic, operational, financial, and compliance (Hustad 2017, p. 29). The other essential principle of enterprise-wide approached in management of risk is the implementation of the idea through the systems or framework of risk management.
Cases of enterprise-wide approach on risk management
There are several case studies on the approach of enterprise-wide in managing risk of different organizations. Some of these studies consist of KPMG framework and COSO –ERM Framework among other different approaches (Saffady 2016, p. 53). Existence of different framework has made it clear that there is no single methodology that organizations and their management need to follow in supporting their operations.
The framework of KPMG maintains that enterprise-wide approach in risk management and its strategy need to be intrinsically connected to the business strategy of an organization. Therefore, risk portfolio development, optimization of risk, as well as gauging and checking happen in the circumstance of different policies that are rooted in the arrangement of enterprise-wide approach (Ogutu, Bennett, and Olawoyin 2018, p. 45). Such ideas ensure that management of risk is embedded in the structure of an organization effectively and efficiently.
Figure 1: Enterprise-wide approach on risk management presenting the emerging model for creating value for shareholders. A KPMG framework
COSO – ERM Framework
The framework of COSO – ERM on enterprise-wide approach in managing risk is presented in more detail as it helps in introducing key terms of risk. The framework comprises of a matrix of three dimensions in the form of a cube. The presentation in any organization reflects the relationships that exist between four different objectives, seven varied components, and four varied levels of organization (Xu 2015, p. 771). Moreover, the four objectives presented by this approach include strategy that focuses on high levels of goals that are always aligned with and supports mission of organization. Another objective is operations that are efficient and effective on the manner that the useful resources. The other two objectives comprise of reporting that are reliable and compliance that goes in handy with set regulations and laws. These categories in this framework may be the responsibility of varied executives across the entity together with address of varied requirements. Moreover, eight different components of this framework in enterprise-wide approach in risk management include internal setting, objective setting, and identification of event (Liu, Zou, and Gong 2013, p. 1272). The other components include assessment of risk, response of risk, control activities, monitoring, together with information and communication of the risk and its nature. Additionally, the four different organizational level of this framework of enterprise-wide approach in risk management comprises of entity level, subsidiary, division, together with business unit.
Figure 2: Enterprise Risk Management - Integrated Framework
From the above illustrations on the approach of enterprise-wide to supervising risk, it is evident the approach is essential element that supports operations of an organization. The approach comprises of vital processes and techniques used by different organization to manage their risk and seize operational opportunities in order to attain their mission and objectives. Enterprise-wide approach to management of risk offers great framework for management of risk (Córdova and Yanine 2013, p. 247). Some of the frameworks illustrated above consist of process of identification of specific events or circumstance useful in attaining the targets of organization. From the discussion, it is evident that enterprise-wide approach to management or risk is useful in describing risk-based approach useful in managing the enterprise and integrating their concepts of internal control.
List of References
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Alzahrani, A., Qureshi, M. S. and Thayananthan, V. (2017) ‘RFID of next generation network for enhancing customer relationship management in healthcare industries’, Technology & Health Care, 25(5), pp. 903–916. doi: 10.3233/THC-170934.
Clyde-Smith, J. (2014) ‘Utilising enterprise risk management strategies to develop a governance and operations framework for a new research complex: a case study’, Journal of Higher Education Policy & Management, 36(3), pp. 327–337. doi: 10.1080/01587919.2014.899051.
Córdova, F. M. and Yanine, F. F. (2013) ‘Linking Enterprise Flexibility to Strategic Options: A Control Problem Approach’, Iberoamerican Journal of Industrial Engineering, 4(9), pp. 239–260. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=94075390&site=ehost-live (Accessed: 7 November 2018).
de Jongh, P. J. and Erasmus, C. M. (2014) ‘Industry-directed training and research programmes: The BMI experience’, South African Journal of Science, 110(11/12), pp. 17–24. doi: 10.1590/sajs.2014/20130392.
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Hallowell, M. R., Molenaar, K. R. and Fortunato, B. R. (2013) ‘Enterprise Risk Management Strategies for State Departments of Transportation’, Journal of Management in Engineering, 29(2), pp. 114–121. doi: 10.1061/(ASCE)ME.1943-5479.0000136.
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Liu, J. Y., Zou, P. X. W. and Gong, W. (2013) ‘Managing Project Risk at the Enterprise Level: Exploratory Case Studies in China’, Journal of Construction Engineering & Management, 139(9), pp. 1268–1274. doi: 10.1061/(ASCE)CO.1943-7862.0000717.
Ogutu, J., Bennett, M. R. and Olawoyin, R. (2018) ‘Closing the Gap: Between Traditional & Enterprise Risk Management Systems’, Professional Safety, 63(4), pp. 42–47. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=128783049&site=ehost-live (Accessed: 7 November 2018).
Richards, K. C. (2013) ‘The Importance of Change Management in Managing IT Projects in the Public Service of Trinidad and Tobago’, West Indian Journal of Engineering, 36(1), pp. 35–46. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=112135792&site=ehost-live (Accessed: 7 November 2018).
Saffady, W. (2016) ‘Records Management’s Interactions with Information Governance Stakeholders’, Information Management Journal, 50(5), p. 50-55. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=119394030&site=ehost-live (Accessed: 7 November 2018).
Smith, P. V. (2015) ‘Creating a risk-aware campus’, University Business, 18(3), p. 56. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=103326344&site=ehost-live (Accessed: 7 November 2018).
Xu, S. (2015) ‘Model for evaluating the commercial banks financial risk with interval grey uncertain linguistic variables’, Journal of Intelligent & Fuzzy Systems, 28(2), pp. 767–773. doi: 10.3233/IFS-141358.