Success through intelligent risk taking

In recent years, more than ever, senior management has been searching for better ways to make informed decisions in order to achieve their business objectives. This has commonly been assisted through risk management practices. The gradual transition from conventional risk management to all encompassing Enterprise Risk Management (ERM) has enabled senior management to be aware of the risks to which it is susceptible, while developing plans designed to respond to these very risks. ERM has also gained substantial momentum because of the growing importance of solutions for compliance and regulatory norms (including BASEL II) for which ERM lays down the foundations. Triggers for ERM implementation include catastrophic events such as stock market crashes and the current credit crisis, credit rating processes, compliance with regulatory bodies such as the Central Bank and other government regulatory bodies, the introduction of ERM by competitors, challenges posed by new or emerging products and the dynamic nature of business risk.

ERM is a capability that involves identifying, measuring, monitoring, reporting, and responding to risks across an enterprise in a way that is aligned with the enterprise’s objectives and risk appetite. ERM should address all major risk types including compliance, financial, hazard, operational, as well as strategic risks across all major business units and functions within an enterprise. ERM emphasizes value creation as well as value preservation and the application of risk quantification techniques to develop risk portfolios using measures such as Cash Flow at Risk and Earnings at Risk.