ERM Frameworks Flashcards
ERM - Integrated Framework
To assist organizations in developing a comprehensive response to risk management
Risk
The probability that some event will happen that can affect the achievement of goals and objectives
Value
Stock price up and/or pay dividends - Develop Value, Willing to face risk
Value (CPER)
Creation, Preservation, Erosion, and Realization. Value is defined by the type of entity
Value Creations
Benefits have to exceed cost of resources. Need to generate a profit.
Value Erosion
Do not want value to go down. The cost is greater than the benefit.
- Faulty Strategy
Value Realization
Dividends/SP > cost “capital gain” Value is received by stakeholders. Brand is recognized, leadership, customer satisfaction
Mission, Vision, and Core Values
What an entity strives to be and how it wants to conduct business..Successful and ethically
Mission
Objective, core purpose
Vision
Strategy
Vision
Strategy
Core Values
“How” to achieve goals - ethics, culture, core values
CCPIS
To manage risk and create value
Culture, Capabilities, Practices, Integration with Strategy
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.
Culture
Core Values, collective thinking, shaping decisions
Capabilities
Competitive Advantage
Exploitation
Practices
Continually Applied through all levels of the entity
Integration with Strategy
Setting and Performance
Performance - Why do you exist? - mission
What’s your vision/strategy?
Managing Risk Linked to Value
Value - Reasonable expectation, value creation depends on risks assumed
Risk Appetite
Willingness to assume risk
A range rather than a specific limit and provide guidance on the practices
Value and Risk
Directly related - risk assumed and expected return
Risk Inventory
All risk that could impact an entity (economic, societal, demographics, legal)
Entity-wide Risks
Holistic view/ are we diversified
Portfolio View
Organizational Sustainability
Performance Management
5 Components of ERM (GOPR) and 20 Principles
Somewhat resemble to the COSO cube
- Governance and Culture (DOVES)
Tone at the top - core values - EBOCA
Defines desired culture - how conservative or aggressive
Exercises board oversight - entity’s strategy, business objectives
Attracts, Develops, and Retains Capable Individuals (Employees
- Strategy and Objective Setting (SOAR)
Mission/Vision - define risk appetite
- Risk appetite (strategy setting)
- Analyze business context
- Strategy and Objective Setting (SOAR)
Mission/Vision - define risk appetite
- Risk appetite (strategy setting)
- Analyze business context
- Risk Appetite (what risk is suitable), maybe quantitative
- Strategies - More equity/ less debt, aggressively conservatively
- Objectives - Goals and objectives has to be reachable, must be realistic
- Performance (VAPIR)
Evaluate, ID & respond to risk using ARTS
Similar to risk assessment
- Identify Risk
- Assess Severity of Risk - Helps to prioritize, look at it at multiple levels. identify triggers
- Prioritize risk
- Risks Responses (ARTS) (Look at chart)
- View Portfolio - (Entity-wide view)
- Review and Revision (SIR)
Assess substantial changes, pursue improvements
Internal - Change in officers
Reviews risk and performance
Improve
- Information, Communication, and Reporting (Ongoing) (TIP)
IT, Risk info, Performance - OIE
- Relevant information (internal & external)
- Technology - Fair, Accurate, Complete, and Timely
Effective data management
- Performance - How did we do in managing risk
Pass Key
5 Components and 20 Principles
Risk Assessment
Actual, Target, and Inherent Risk
Residual risk
What happens after an action is taken
