ERM Difference in corporate worldIntroductionIn recent years the companies around the globe strikes due the global economics crises and major risk events but there is a dispute some thinks that some attention to risk management is important at enterprise level other says that the current practices fail to deliver

Historically in the corporate level the concept of risk management is evolved from the health and safety risk management in heavy industries and natural recourses companies . it focus on detail cataloging, tracking and mitigation of what might go wrong expanding beyond health and safty . this list is typically called risk registers the companies who uses this as core framework for enterprise risk management routinely miss or underestimate the risks that at the end of day mattering.

In financial sector due to the role of intermediate and disaggregate of risk they lead the charge in developing the practices of risk management. Due to recent failure in this sector promote the healthy sense of doubt about using this industry as blueprint for others but if we taught about liquid risk the financial sector continually provide a framework for all other sectors. Most of the corporate sector hire the risk officers from financial sector

Literature reviewAlthough the financial sector have been the cradle of modern risk management as the set of disciples and processes developed since the late 1980s but there are four stages of maturity use to reframe the risk journey in all sectors 1) initial transparency stages 2) systematic risk management 3) risk return management 4) risk at competitive advantage. Some of the financial find themselves in stage 1, and a handful of investment banks would consider themselves at stage 3 the average financial sector fall in stage 2. Other industry sectors have different centers of gravity.

When any financial institution risk practitioner arriving at a corporate he surprised because of absence of standardized risk taxonomy in bank at high level there is a clear and ubiquitous separation into market, credit, operational and liquidity risks. Corporate that have thought systematically about their risks usually developed a non standardized taxonomy of their own

In risk oversight the crucial role play by directors. In most part of the world director do so under the law business jurisdiction rule, which is the legal foundation of undertaking risk. Board must go a further step and ensure that their capabilities are at a level to face any type of risk. For the best practices there are five dimensions of ERM which must be well develop

The first one is risk transparency and insight. Many companies are well prepared before crises but even then can’t face it the reason is that these risk assessment often miss large the company wide risk and they also fail to identify how multiple risks the company can face. Insight mean most useful exercise for

the board and top management is to identify the three to five big bets the company depend on. Risk transparency on the board level is only possible where a risk reporting process is produces insightful and well synthesized board level risk report

A company which is inherently risk taker would clearly articulate how much risk they are going to take, what kind of risk they are willing to take, and much profit they are expecting from those risks this come under risk appetite and strategy. Appetite means the ability of company to withstand risk when it materializes actually. The best to assigning risk capacity depend on the nature of business and its risk profile. Risk appetite how much the company will take overall it then need to decide which risk it makes sense to embrace these are those risks the company owns.

If we look at the processes related to risk there are three processes where the risk consideration needs to integrated and where the board play key role 1) strategic planning and risk management often operate parallel strategic planning make assumption about the business and management explore uncertainties into those assumption if the strategists do not think carefully and comprehensively about the risk that might be encounters in their planes . for a good strategic plan it must be acceptable by risk management 2) capital allocation process in which management give its blessing to the parts of the company to take on certain risks in the search of return. All the investment decisions typically include the tradeoff between risk and return flexibility. 3) the decision to take long term debt change the structure of capital has important implications for risk capacity.

Failure in the risk culture were the main cause of credit crises of 2008. In fact, it is altogether too easy for human beings to fail to several traps that leads to poor decisions making situations where risk and reward have to weighted. Risk culture is the norms of behavior for individuals and groups within the company that determine to accept or take risks. Such norms can be difficult to determine

Conclusion There are both important similarities and differences between risk management in financial institutions and in corporate. This is the nature of particular risks each face and the way these risks are reflected in the company’s value creation and management culture.