ERM (B1:M2) Flashcards
value creation, preservation, erosion, realization
creation: successful and profitable launch of new product line
preservation: high customer satisfaction with profitable product line
erosion: unsuccessful launch of new product line
realization: dividends paid to shareholders
definition of ERM
the culture, capabilities, and practices, integrated with strategy setting and performance, that organizations rely on to manage risk in creating, preserving, and realizing value
5 components of ERM. GO PRO
Governance and culture
Objective-setting and strategy
Performance
Review and revision
information, communication, and reporting (On-going)
principles of governance and culture. DOVES
defines Desired culture
exercises board Oversight
demonstrates commitment to core Values
attracts, develops, and retains capable Employees
establishes operating Structure
principles of objective-setting and strategy. SOAR
3 evaluates alternative Strategies
4 formulates business Objectives
1 Analyzes business context
2 defines Risk appetite
principles of performance. VAPIR
5 develops portfolio View
2 Assesses severity of risk
3 Prioritizes risk
1 Identifies risks (events)
4 implement risk Responses
principles of review and revision. SIR
1 assesses Substantial change
3 pursues Improvement in ERM
2 Reviews risk and performance
principles of information, communication, and reporting (on-going). TIP
leverages information and Technology
communicates risk Information
reports risk, culture, and Performance
what are the risk responses?
accept: no action taken to change severity of risk
avoid: action taken to remove risk
pursue: action taken that accepts increased risk to achieve improve performance
reduce: action taken to reduce severity of risk
share: action taken to reduce severity of risk by sharing it with other parties (e.g., insurance)
risk is a ___ event, while opportunity is a ___ event.
negative; positive
risk appetite
theoretical balance between an entity’s willingness to accept risk and the return/growth goals that the entity wishes to achieve
residual risk = ?
inherent risk - impact of management actions
when has an organization’s risk appetite been exceeded?
when the likelihood and impact of negative events significantly exceed residual risk
