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Enterprise Risk Management by Derek Hendrikz covers ERM, risk planning and strategy as well as development of risk appetite methodology. www.derekhendrikz.com
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Copyright © 2014
Derek Hendrikz Consulting
www.derekhendrikz.com
…the process by which organizations identify, 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 shareholders….
www.derekhendrikz.com
It is a rigorous coordinated approach to assessing and responding to all risks that affect achievement of an organization's
strategic and financial objectives.
www.derekhendrikz.com
FUNDAMENTAL PRINCIPLES OF ERM:
• Continuous actions designed to meet the risk management and corporate objectives (a process).
• Applied across the whole enterprise, at every level and unit.
• Designed to manage downside and exploit upside risks in direct relation to an institutions strategy and risk appetite.
• Includes risks from all sources (financial, operational, strategic).
• The coordination of risk management activities such as:
• Risk assessment;
• Risk mitigation;
• Risk financing; and
• Risk monitoring. www.derekhendrikz.com
DIFFERENCES BETWEEN TRADITIONAL RISK MANAGEMENT AND ERM:
Traditional Risk
Management
ERM
Fragmented.
Negative.
Reactive.
Ad Hoc.
Cost-based.
Narrowly-focused.
Functionally driven.
Integrated.
Positive.
Pro-active.
Continuous.
Value-based.
Broadly focussed.
Process driven.
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MEASUREMENT DRIVEN ERM APPROACH
• Focuses on identifying key risk factors facing an organisation and understanding their materiality and probability of occurrence.
• Risk mitigating activities are focused on the most material risks with appropriate mitigating strategies.
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THE MEASUREMENT DRIVEN APPROACH TO ERM:
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THE PROCESS-CONTROL ERM APPROACH
• Focuses on key business processes and accompanying uncertainties in the execution of the business plan.
• Emphasis on linking the process steps, reporting relationships, methodologies and data collection.
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The Process-Control Approach to ERM:
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STEPS TO
IMPLEMENTING
ERM
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1. Develop a common risk framework.www.derekhendrikz.com
2. Establish overall risk management goals.www.derekhendrikz.com
3. Develop your risk management vision.www.derekhendrikz.com
4. Develop strategies to achieve overall goals and objectives, align risk strategies with business strategies.
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5. Develop a risk management policy.www.derekhendrikz.com
6. Obtain approvals, communicate
widely and periodically evaluate.www.derekhendrikz.com
3 PRIMARY ERM RISK
CATEGORIES
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Affects the viability and survival of the business.
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Environmental
Risk
Affects business operations and goal execution.
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ProcessRisk
Affects the reliability and relevance of information that supports value-creation decisions.
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DecisionRisk
PRINCIPLES OF ERM (KING II REPORT):
Establish formal board accountability for risk management.
Develop a framework of ERM for the organization.
Establish organizational structures for ERM.
Establish a structured process of risk assessment.
Develop a risk-based environment.
Establish a system of risk monitoring.
Establish a process of risk reporting.
Embed the process of ERM into the organization.
Establish assurance processes for key risks and for the ERM process.
Incorporate the risk related aspects of integrated sustainability reporting into the ERM framework.
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