ERM Strategy and Objective Setting Flashcards

1
Q

What are the four principles under strategy and objective settings?

A

1) Analyzes Business Context.
2) Defines Risk Appetite
3) Evaluates Alternative Strategies
4) Formulates Business Objectives

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2
Q

Define Business Context:

A

Business Context = trends events, relationships and factors that influence, clarify or change an entity’s strategy

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3
Q

Analyze the Business Context: What is External Environment. What does PESTLE stand for??

A

External Environment- Regulatory agency, investors

PETSLE:

1) Political- Nature and extent of gov’t and influence
2) Economic- Interest rates, inflation, availability of credit
3) Social
4) Technological
5) Legal
6) Environment

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4
Q

Analyze the Business context: What is Internal Environment? What are the categories of internal environment?

A

Capital- Assets, including cash, equipment, property, patents

People- Knowledge, skills, attitudes, relationships, values, and culture

Process- Activities, tasks policies, or procedures; changes in management, operational, and supporting processes

Technology- New, amended, and or adopted tech

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5
Q

Analyze the business context- How does management integrate business context with ERM?

A

1) Governance and culture: identify governance and associated regulatory trends in industry. Incorporate understanding into ERM oversight.
2) Strategy and Objective Setting: Conduct detailed analysis of social trends, retail trends, and consumer confidence.
3) Performance: Assess environmental trends and evaluate their impact on risks relating to the objective of reducing packing by 50%.

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6
Q

Define risk appetite- how do you develop strategy and risk appetite?

A

Some organizations quantify risk appetite (in numbers) or other state risk appetite in words.

Set risk capacity > Risk appetite except in unusual cases (e.g. bankruptcy)

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7
Q

What are some considerations for defining risk appetite?

A
  • Risk profile: Composite assessment of risks, including types, severity, and interdependence
  • Risk capacity: Risk maximum
  • ERM capability and maturity. More mature and capable ERM = greater insight into risk appetite
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8
Q

What are some examples of risk appetites?

A
  • Target Risk: Credit Union = loan loss target of .50%.
  • Risk Range: A medical supply company operates with low overall risk range
  • Lowest risk appetite relates to safety and compliance
  • Higher risk appetite for its strategic, reporting, and operations
  • Risk ceiling (maximum): University accepts moderate risk appetite to expand offerings; NO programs that present severe risk to university mission
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9
Q

How do you state risk appetite?

A

Risk appetite statement- risk is present in all activities. It shows how an entity will handle risk in all areas in which it operates. Considering the major spheres of the organization and places each major activity along that risk continuum.

Organization states the strategy along with risk appetite . Emphasizes the brand.

Link business objective to the risk appetite.

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10
Q

T/F: We are going to allocate more resources to business objectives with lower risk appetite and fewer resources to business objectives with higher risk appetite?

A

TRUE

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11
Q

T/F: Strategy must align with mission, vision, and core values, and risk appetite?

A

TRUE

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12
Q

One of the best ways to evaluating strategy including alternative strategies is what method?

A

SWOT (Strengths, weaknesses, opportunities, and threats)

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13
Q

Formulate burins objectives: What is tolerance?

A
  • Accepts range of performance variation

= Tolerance is measured in numbers

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