Culture pertains to ethical values, desired behaviors, and understanding of risk in the entity.Ģ. Governance and Culture: Governance sets the organization’s tone, reinforcing the importance of, and establishing oversight responsibilities for, enterprise risk management. "The Framework itself is a set of principles organized into five interrelated components.ġ. The Committee of Sponsoring Organizations of the Treadway Commission (COSO)ĬOSO Enterprise Risk Management (Revised - June 2017) COSO Enterprise Risk Management, Integrating with Strategy and Performance, Executive Summary, June 2017 Increasing positive outcomes and advantage while reducing negative surprises.Identifying and managing risk entity-wide.Increasing the range of opportunities: By considering all possibilities - both positive and negative aspects of risk - management can identify new opportunities and unique challenges associated with current opportunities."Organizations that integrate enterprise risk management throughout the entity can realize many benefits, including, though not limited to: It is a set of principles on which processes can be built or integrated for a particular organization, and it is a system of monitoring, learning and improving performance." Its principles apply at all levels of the organization and across all functions.Įnterprise risk management is not a checklist. It also addresses other topics such as strategy-setting, governance, communicating with stakeholders, and measuring performance. It is broader and includes practices that management puts into place to actively manage risk.Įnterprise risk management addresses more than internal control. It requires more than taking an inventory of all the risks within the organization. It is the culture, capabilities, and practices that organizations integrate with strategy-setting and apply when they carry out that strategy, with a purpose of managing risk in creating, preserving, and realizing value.Įnterprise risk management is more than a risk listing. "Enterprise risk management is not a function or department. Applying enterprise risk management helps to create trust and instill confidence in stakeholders in the current environment, which demands greater scrutiny than ever before about how (management) is actively addressing and managing these risks." Once strategy is set, enterprise risk management provides an effective way for management to fulfill its role, knowing that the organization is attuned to risks that can impact strategy and is managing them well. It allows management to feel more confidant that they've examined alternative strategies and considered the input of those in their organization who will implement the strategy selected. Enterprise risk management enriches management dialogue by adding perspective to the strengths and weaknesses of a strategy as conditions change, and to how well a strategy fits with the organization's mission and vision. Most notably, through this process, management will gain a better understanding of how the explicit consideration of risk may impact the choice of strategy. That starts by deploying enterprise risk management capabilities as part of selecting and refining a strategy.
" Management holds overall responsibility for managing risk to the entity, but it is important for management to go further: to enhance the conversation with the board and stakeholders about using enterprise risk management to gain competitive advantage. COSO Enterprise Risk Management, Integrating with Strategy and Performance, June 2017 The types and amount of risk inherent in carrying out its strategy and achieving business objectives and the acceptability of this level of risk, and ultimately, value.".The types and amount of risk the organization potentially exposes itself to by choosing a particular strategy.The possibility that strategy and business objectives may not align with the mission, vision, and core values.How mission, vision, and core values form the initial expression of what types and amount of risk are acceptable to consider when setting strategy."Enterprise risk management helps an organization better understand: The practices are intended to help people within the entity better understand its strategy, what business objectives have been set, what risks exist, what the acceptable amount of risk is, how risk impacts performance, and how they are expected to manage risk." "The practices used in enterprise risk management are applied from the highest levels of an entity and flow down through and functions. It's looking at what we could do a little differently to generate a positive result. Enterprise risk management isn't a list of worst case scenarios.
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