Mod 08: ERM processes and structures Flashcards
Explain what is meant by corporate strategy
Corporate strategy
Corporate strategy arises when an organisation assesses its:
1. value chain
2. core competencies and
3. the risk / return economies of the overall business.
The resulting corporate strategy identifies where in the value chain it ought to compete and covers:
1. sales growth
2. choice of products (and their design and pricing)
3. choice of distribution techniques and target markets
4. cost management
5. asset management
6. merger / acquisition activity.
Explain why financial distress may result in poor decision making
Why financial distress may result in poor decision making
Financial distress can encourage management to take actions that conflict with other stakeholders’ interests, eg:
1. producing poor quality goods
2. operating a less safe work environment
3. cutting back on longer-term investment spend
4. exiting promising lines of business
5. liquidating an operation that would otherwise have continued to operate adequately.
Volatility in corporate earnings or profits can also affect the share price and the ability to take full advantage of tax credits.
Describe the types of companies that would benefit most from active RM
Types of companies that would benefit most from active RM
Companies that would benefit most from active RM include those that:
1. offer products with high added value, eg having high production quality
2. offer products for which there are high costs of switching to another line
3. offer products for which the value to customers depends on complementary services or products supplied by other independent companies
4. have high sales growth opportunities.
Describe what is typically involved in the systematic management of corporate uncertainty (in its widest sense)
Managing corporate uncertainty
This typically involves:
1. techniques to ensure potential problems are spotted early to facilitate appropriate mitigation, eg:
a. horizon scanning
b. knowledge gathering
2. embedding greater resilience and flexibility into corporate structure to help deal with surprises, eg:
a. increased outsourcing, eg of customer services, IT
b. diversified operational locations
c. shift distribution channels, eg from physical stores to online
d. multi-disciplined and multi-skilled teams of individuals.
State the five elements of the actuarial control cycle
The actuarial control cycle
1. General commercial and economic environment
2. Specify the problem
3. Develop the solution
4. Monitor the experience
5. Professionalism
Outline a generic five stage ERM process (risk control cycle)
A generic five stage ERM process (risk control cycle)
1.Identification
defining and recording all risks in a consistent way
2. Assessment
considering/quantifying risks in the context of the risk appetite
3. Management
ongoing treatment of the risks
4. Monitoring
continuous recording, review and reporting of risks, losses and effectiveness of treatments + external audit
5. Modification
alter approach as business and risk environment changes
Define organisational resilience
Organisational resilience
Organisational resilience is defined as the ability of an organisation to anticipate and prepare for both small incremental changes and significant unknown events and to develop a strategy for managing the outcome of these changes and events.
State three component activities of dynamic risk management
Dynamic risk management
1. detect risks and control weaknesses
2. delimit risk appetite
3. decide on risk-management approach
Give five actions to establish capabilities for dynamic risk management
Actions to establish capabilities for dynamic risk management
1.reset aspiration for risk management
2. establish agile risk-management practices
3. harness power of data and analytics
4. develop risk talent for future
5. fortify risk culture
Give three imperatives for confronting challenges posed by threats across risk categories
Three imperatives
1. connect and manage the full range of risks:
− mitigate risks that are not well covered (or well known)
− optimally fund risk mitigation efforts
− address work risk.
2. act on ESG risks and on sustainability
3. build organisational resilience:
− financial
− operational
− human.
