Mod 01: What is ERM? Flashcards
Define ERM
There is no single definition of ERM! The definition in the SP9 Principal Terms is:
ERM is a holistic risk management process which considers the risks of the enterprise as a whole, rather than considering individual risks and business units in isolation.
(ActEd 12)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Explain what is meant by ‘risk management’
(ActEd 13)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Risk management Risk management is the process of:
1) identifying the risks faced by an organisation
2) assessing how likely these risks are to materialise and what their impact could be
3) deciding how to deal with each risk.
The objective of risk management is to optimise risk-adjusted returns, ie to maximise returns for a given level of risk.
(ActEd 14)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Outline the key problem of a silo approach to risk management
(ActEd 15)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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The problem with a silo approach
A silo approach to risk management misses the interactions and interdependencies between risks faced by different business units.
These interrelationships between risks may serve to reduce their impact (diversification), or may work to increase their effect (concentration).
(ActEd 16)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Outline the five main ERM concepts
(ActEd 17)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Definition of ERM and the five ERM concepts
General agreement on the overall ERM concept encompasses the following five elements: 1. taking a holistic, integrated approach 2. considering both downside and upside risks (seize opportunities) 3.
measuring risks – quantifiable risks 4. measuring risks – unquantifiable risks 5. determining the appropriate response to each risk
(ActEd 18)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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List the four main risk responses
(ActEd 19)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Risk responses
1. Retain
2. Remove
3. Reduce
4. Transfer
(ActEd 20)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Outline reasons why care must be taken when implementing ERM
(ActEd 21)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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Health warnings!
1) Risk cannot be managed without additional work and cost.
2) Going through the motions of ERM without truly embracing its ethos can increase bureaucracy and damage an organisation.
3) ERM needs to complement an organisation’s commercial advantage.
4) A lack of appreciation of the wider, commercial context of an organisation is likely to sabotage attempts to improve risk efficiency.
5) Individuals must behave professionally, recognising that others may have different views.
6) What is actually implementable may differ from the theoretically perfect and is likely to require significant negotiation.
(ActEd 22)
ActEd, BPP. Subject SP9 Flashcards 2025. BPP (THE ACTUARIAL EDUCATION COMPANY), 09/2024. VitalBook file.
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