Enterprise Risk Management - Case Study Example

Your name: Course name: Professors’ name: Date Enterprise Risk Management Globally, many organizations struggle with implementing Enterprise Risk Management. Identifying what level and how to integrate this approach into the business is challenging to some organizations. Managers are often aware of the relevant risks associated with their business. However, some don’t utilize ERM models in solving their risk problems. Various challenges face organizations globally. Therefore implementing the appropriate ERM model in their business may be invaluable. In these situations or challenges, what is the relevance of ERM, what does it offer and does it allow a better perspective in risk management? ERM offers a framework for managing risk. Typically, this involves identifying circumstances or events relevant to the objectives of the organization (opportunities and risk), assessing them on their impact, defining a response scheme and then monitoring the progress (Louisot & Christopher 2014, p. 45). By identifying and addressing risks, businesses create value for their stakeholders and protect them from financial loss. ERM is very important in dealing with challenges and issues associated with accounting information systems. ERM enables business enterprises to prioritize operations and allocate resources to the risks that underpin the sustainability of the enterprise. The organization ability to sustain something of value relies on its capability to comprehend and plan for the risk that may affect the realization of the organization objectives. ERM enables the organizations to analyse risks that could significantly affect or impair its capital. ERM uncovers risks associated in the accounting information systems to build organizational sustainability and resiliency (Louisot & Christopher 2014, p.56). The ability of the organization to recover rapidly from financial setbacks depends on the organization ability to identify the risks associated. It focusses on the organization ability to take more risk if it is tolerable. It also focusses on the control techniques to manage the risk undertaken. Through partnership with the internal audit, ERM monitors organization’s confidence in the established systems for managing and controlling the uncovered risk. The ERM framework offers management and evaluation processes/programs and systems for the associated risk. On a Low, Medium or High scale, what is the confidence level that the appropriate control mechanism have been employed, maintained, and monitored? How effective are the control systems? Do the controls change when the financial operations change? Focus on ERM perspective, methodologies and techniques offers a means to assess crucial performance indicators on the subject of risks. This perspective offers a better measure to quantify tolerances and risk factors. Identifying the key financial measurements and metrics of risk improve the value of financial analysis and reporting. ERM offers better cost management regarding audit activities. Thus offers increased consolidation and leverage of risk management functions. In analysing the relevance and effectiveness of ERM in organizations, analysis of various organizations will be conducted. Case studies of application of ERM in two organizations will be used in this case (Mike & Robert 2013, p.18). Case 1. Electroworks Company Electroworks is a leading Canadian power utility company. Lack of reliability and risk management could not only lead to asset and financial damage but also to injury or death. Electroworks had to manage complex and compound web of contradictory interests-including government regulations, environmental groups, consumers, and capital debt holders who had a subscription of $1 billion to the company (Mike & Robert 2013, p.18). The chief risk officer (CRO) hired from the banking sector to head the audit section had little expertise on risk management. Therefore, he established a wall to separate his audit role from risk management role. Records of internal audits were made separate from the ones from the risk workshops, and no one else in the company was involved in both activities apart from himself. The CRO, together with the risk managers embarked on a three phase ERM program. In the first phase, the CRO organized workshops that the employees were given a chance identify the principal risks to the company’s strategic objectives. The results of their judgment were summarized on a risk map. In the second phase, the CRO conducted interview with senior managers to evaluate corporate risk profile. The senior management allocated millions of capital to the proposed projects to alleviate the company’s chief risks (Sweeting 2011, p.56). Tying the risk assessment to investment managing processes, the ERM process provided the managers an incentive to reveal risks in the business so that they could find resources to alleviate them. Case 2. Wealthfund Wealthfund is an asset management financial institution. On the wake of global financial crisis, the company hired risk managers. The risk managers were to work closely with the company managers in the various fields. They had a responsibility to improve risk-adjustment returns for the funds while at the same time shielding the portfolios from key downside shocks (Sweeting 2011, p.56). They were to evaluate the market distress and correlate returns across the different classes of assets, such as bonds and stocks. They were able to increase the returns dramatically. By employing ERM, the CEO concentrated on the uncertainties following the recent financial crisis and the effect they had on the risk management approach employed. Enterprise Systems & Business Processes With the fast changing business world, various activities in an enterprise have to be regularly monitored and ensure their processes are updated. The business processes in an enterprise have to be monitored to ensure the workflow is efficient. Business process management entail a systematic and comprehensive approach to making sure the organization’s workflow is effective, efficient and capable of adapting to global changes in the business environment. Business today have adapted business IT systems to effectively manage business processes. Business process management involves employment of structured methods and techniques in identifying, monitoring and modifying the existing processes so as to align them with the desired state (Mike & Robert 2013, p. 18). The BPMN facilitates communication between line of business and the IT department. BPM offers great returns due to the use of technology in process automation enable the experience of the business user. It offers great agility in identifying change in the business process with respect to changing business needs. It enables the managers to understand the process flow in the organization. This is very crucial in analysing and mitigating risks. BPM allows the managers to have a better control with the various business operations and also to comply with the regulatory and audit needs. Effective BPM scheme enables a continuous cycle of analysing, evaluating and improving the business premise. Case 1. Woolworths Limited Woolworths Limited is a leading retail organization in Australia. In achieving its organization goal, the company has employed BPM as an approach in monitoring and controlling its processes. At any given time, there are a number of processes occurring simultaneously across the divisions of the company. The company has successfully implemented BPM in its operations. This gives the company the capability to effectively monitor its processes with the aim of standardization and streamlining the overall efficiency of the operations (Nagel 2010, p.8). The process design team worked closely with Leonardo Consulting to come up with the BPM model at Woolworths Limited. They carried out a robust approach including conventions and guidelines for carrying out the process activities in the BPM projects. For effective operation of the BPM plan, all the relevant staff were trained on process monitoring using the scheme. After the implementation, the company was able to apply BPM reliably across all the divisions of the company with the use of ARIS software platform. They were able to establish a centre or platform for process capture, analysis and reuse. They were able to deploy comprehensive process and enterprise improvement methodology with the BPM. The BPM enabled them to mentor and support projects aimed at improving the outcomes of initiatives in the company. The BPM has served as a tool to effectively monitor and manage risks involved in the various operations of the company. Case 2. Shade Tree Garage (STG) and SPC STG is a garage shop located in New Jersey. It deals with repairing and servicing cars for the local people. On the other hand, SPC manufactures car spare parts. It is also involved in distributing the spare parts to various garage shops located in New Jersey. Prices of the spare parts change on a daily basis. The objective of STG is to maximize the planning reliability and minimizing the company’s stocking costs. SPC recognizes this demand and, therefore, as a selling preposition offer their Garage Shop Information management System (GSIS) to the garage shops. With an automated system, STG can maximize their planning reliability. In order to access the spare parts they only have to access the GSIS and make their order. The BPM employed on this case provides an end-to-end business process that entails reasonable and appropriate business logic with relevance to today’s business. Additionally, it spans and links various departments of the organization. The Business Process Management System (BPMS) enables integration of business issues with technology (Sweeting 2011, p.56). This allows for consistent monitoring of the various operations allowing for better risk control and mitigation. Conclusion Risk assessment involves the process of identifying threats and evaluating the probability of such threats occurring. Risk management involves devising ways of minimizing the probability of a particular threat leading to unfavourable effects. This involves designing and implementing operational internal controls that alleviate, evade or transfer risk. Key challenges in accounting information systems can be effectively mitigated by effective employment of ERM models and appropriate business process management systems. ERM creates value for the shareholders, consumers and improves the overall company productivity. With consistent measurements of risk, it can be easily captured, reported and integrated with monetary terms or in risk maps to facilitate effective comparison, monitoring, analysis, ranking and communication of risks. Communication of the risk is very important in risk management as it enables prioritization of the risk hence mitigation. Business process management is very important as it provides a platform for the capture of various operations in the organization. Integration of the business processes with technology is an important factor in realizing the organization objectives. Incorporation of business system provides a platform where complex business processes can be monitored, analysed and reported. References Louisot, JP & Christopher, K 2014, Erm, Enterprise Risk Management: Issues and Cases, John Wiley & Sons, Sydney. Mike, A & Robert, SK 2013. Towards a Contingency Theory of Enterprise Risk Management, Harvard School of Business, New York. Nagel, C 2010, Enabling Business Process Management at Woolworths Limited., Woolworths, New York. Sweeting, P 2011, Financial Enterprise Risk Management. Cambridge University Press, Cambridge. Read More