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Organization’s risks and opportunities using a risk management framework…
Organization’s risks and opportunities using a risk management framework (CIMA (2008), Enterprise Risk Management)
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ERM frameworks
The KPMG framework
The KPMG framework maintains that ERM and its strategy should be intrinsically linked to an organisation’s business strategy. Risk portfolio development, risk optimisation, and measuring and monitoring take place in the context of strategies based on an ERM structure. This ensures that risk management is embedded in the organisation’s structure
COSO – ERM Framework
Components
Risk response
Management selects risk response(s) to avoid, accept, reduce or share risk. The intention is to develop a set of actions to align risks with the entity’s risk tolerances and risk appetite.
Event identification
These are internal and external events (both positive and negative) which impact upon the achievement of an entity’s objectives and must be identified
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Risk assessment
Risks are analysed to consider their likelihood and impact as a basis for determining how they should be managed. Risks are assessed on an inherent and a residual basis.
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Objective setting
Objectives should be aligned with the organisation’s mission and need to be consistent with the organisation’s defined risk appetite
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Internal environment
Risk management philosophy is the general attitude or approach an organisation takes in dealing with risks
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Objective
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strategic (high level goals, aligned with and supporting the organisation’s mission)
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Limitations of ERM
ERM is a process or methodology for enterprise wide risk management. In common with most methodologies, it is not an exact science.
Factors such as human error, imprecise calculations, incomplete information and breakdown of internal controls preclude a board and management from having complete confidence in the effectiveness of ERM
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