Module 1&2 - What is ERM,Why ERM

Question 1

What is traditional risk management (TRM)

Answer 1

Risk identification
Risk likelihood*Severity
Mitigation of risk
Monitoring of mitigation strategy

Question 2

What makes ERM different from TRM

Answer 2

Holistic Approach(Whole business)
Board (CRO) down to day to day personell
Interaction of risks identified
Value creation

Question 3

Five Key ERM concepts

Answer 3

Holistic Approach
Downside + Upside risks
Risk measurement (Quantifiable + Non-quanitifiable)
Risk responses (transfer, reduce, reject, retain)

Question 4

Why undertake TRM?

Answer 4

Benefits society (Trust of the system)
Job of management
Volatility of earnings is reduced
Shareholder value maximised(risk vs return)
Job security and rewards

Question 5

Why undertake ERM?

Answer 5

Information to snr management on business decisions (understand - exposure, links, external factors, risk vs return is clear, risk appetite alignment)

Risk transparency + Consistency

Operational Effectiveness (risk mgt activity co-ordination, sharing of risk info, links between diff team risks, efficiency improvement)

Enhance business performance (capital, surprises, managing risk better, quick reaction, best mitigation, derive value)

Question 6

ERM value addition examples

Answer 6

Investor attraction
Investors willing to pay a premium for good governance
ROE, profit margins and dividends are higher
Greater value for big companies
Lower volatility of returns
Stock price performance is better (returns vs volatility)