Enterprise risk management (ERM) remains an essential tool to many organizations. ERM started primarily to aid financial risk administration but later transferred to various sectors, businesses, and governments due to its vast versatility. Its key strength is the extensiveness in allowing further integration of every perceived risk to an organization’s plan in a precise portfolio to guide the required strategy. ERM reels from unidentified interdependence between the risk execution strategies and uncertainties resulting from the administration. The article expounds on challenges emanating from performing risk management in institutions with enhanced focus given to problems encountered while executing and integrating risks. Based on the learning theory and knowledge generation model, elements of research identify risk management in organizations. The conceptions address risk commensuration, risk portfolio extensiveness, and the requisite communication to enhance knowledge.
ERM stands distinctively from other threat management structures since it solely tries to incorporate strategic, financial, operational, and hazard risks into one platform to guide the institution’s strategic direction. The framework allows for the progressive addition of more threats to its portfolio as the management capability expands (Schiller & Prpich, 2014). From the above perspective, the possibilities seem infinite since ERM can change threat from a protective model to an upcoming-oriented idea, facilitating firms to acquire fresh openings in their respective environment. The position helps to describe ERM’s preference across several fields, sectors, and organizations.
The research employs a methodology, which analyzes and provides deep comprehension on how to organize risk management in various institutions. Increased engagement by organizations under numerous social settings exposes diverse kinds of risks. Few experiential studies about the handling of menaces in either businesses or government exist with consultants who generate confidential reports dominating the field. Various studies examined the operations of integrative risk management in organizations and their application in the fields of financial and insurance risk management.
The application of ERM proves to be varied as the structure differs from other risk management methods by comprehensiveness in the covered and managed risks. Moreover, existing outlines assert that their control is freely moveable between sectors and organizations causing easy operation in various institutional environments. Nonetheless, scarce proof regarding the competency of enterprise risk management depicts the wide-ranging results (Schiller & Prpich, 2014).
The situation could be triggered by the decline in risk impacts and probabilities, useful commensuration rationality, and the insensitive organizational background. Therefore, to comprehend ERM’s strange compatibility and effectively analyze the assertions of transferability, it is prudent to scrutinize its conceptual basis and risks integration across multiple fields. ERM was configured to be fluid but occasionally, the user encounter incidences of threats as witnessed in some organizations.
ERM structure posits that calling upon employees for danger sensitization can establish internally-based risk culture. It also highlights that risk attitudes align with objectives and strategies. The concept further states that threat assessment entails probable occurrence and effects of the damage. Likewise, ERM system for corporate management has been used successfully by the United Kingdom government as the blueprint that presents statutory guidance following consistent reliance on the framework (Schiller & Prpich, 2014). As a theoretical innovation, ERM initiated the idea of risk maturity, a model that embodies an internal growth process and guide many organizational roles. ERM guidance proposes that institutions can abstract from intricate scenarios by adopting a risk management framework that addresses objectives or strategies for organizations.
There are concerns over increased uptake of ERM by private firms that are turning out to be challenging. ERM presumes every risk applicable to institutional strategy commensurate to fiscal terms. The supposition might not be suitable for companies, whose threat portfolio is incongruent, multifaceted, and impactful for many stakeholders. Such organizations encounter the difficulty of commensurations, which increases based on portfolio’s size alongside other consequences and imminent consistency in risk handling. Therefore, these challenges of commensurability and comparability give specific direction for ERM’s indefinite models, such as risk appetite, risk transfer, balanced approach, or whole portfolio management.
Implicit to enterprise risk management is a set of assumptions. For instance, risks can be unambiguously and objectively defined and differentiated from obscurity, ignorance, or uncertainties. Moreover, risk-related data stay reported without proper behavioral or technical frictions to the topmost level of the company. It can also be noted that the risk in a firm’s portfolio directly relates to executable tasks. ERM platform can use decomposable actions to effectively handle threats. Explicitly, once risk management becomes available at the top levels of the business, the responsibility of risk handling shifts to the board who allocate roles hierarchically downwards.
Organizational learning theory becomes predominantly applicable in risk management discipline. The foundation of this concept is to find a relevant process for mitigating primary perils. After attaining this procedure, the model suggests outlining the attributes of every method linked to the wider safety plan turnaround strategy to enable the return to innocuous levels. The theory is useful in managing established presumptions while enhancing the capacity of risk management.
The work establishes that the absence of conscious risk knowledge coupled with the existing incarnation of enterprise risk management arising internally tends to limit the threat management process. ERM can produce uncertainty and ambivalence over results without companies with the capacity to create knowledge, which can then activate secondary risks. The disordered insight of organizational processes combined with insufficient recognized designs has led to a physical intricacy.
The system is vastly efficient in addressing most risk likely faced by businesses. ERM assumes that any occurrence with the possibility of threatening a company’s objective comprises a risk. Consequently, a systematic evaluation of these threats helps to instruct the preparation of an effective strategy to mitigate such menaces. Moreover, the study elaborates the flaws of ERM and corresponding experiential strategies and recommendations to overcome the identified gaps to enhance it efficiency.
Schiller, F., & Prpich, G. (2014). Learning to organize risk management in organizations: What future for enterprise risk management? Journal of Risk Research, 17(8), 999‐1017. Web.