Category Archives: Enterprise Risk Management

10 Enterprise Risk Management Criteria

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Mash Risk Television has put together a new video documenting what it considers to be “The 10 Key Enterprise Risk Management Criteria.” I’m not going to pretend that this as engaging as an episode of Mad Men or anything, but Sim Segal, the guy doing the talking, does use some examples from the Titanic, AIG and others to drive home some insightful points about ERM.

Here are the 10 critieria:

  1. Enterprise-wide
  2. Includes all risks
  3. Focuses on key risks
  4. Integrates across risk types
  5. Aggregates metrics
  6. Includes decision making
  7. Balances risk and return management
  8. Makes appropriate risk disclosures
  9. Measures value impacts
  10. Focuses on primary stakeholders

Enjoy the show.

Financial Institutions Further Embracing ERM: Deloitte

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The failure of numerous banks and financial institutions during the past several years has shown, in its harshest fashion, that such institutions did not fully embrace a strict risk management regimen. Things have changed since then, however, and Deloitte’s Global Risk Management Survey shows just that.

Deloitte surveyed 131 financial institutions from around the world with total assets of more than trillion.

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The following are a few key findings from the report:

  • Roughly 90% of institutions had a defined risk governance model and approach, and 78% reported that their board of directors had approved their risk management policy or ERM framework
  • 86% of institutions had a CRO or equivalent position, up from 73% in 2008 and 65% in 2002
  • 79% of institutions reported having an ERM program or equivalent in place or in progress, an increase from 59% in 2008 (see below)

  • For insurance institutions subject to Solvency II, 70% or more said they plan to focus over the next 12 months on program initiation, gap analysis, and planning; risk governance; and Own Risk and Solvency Assessment (ORSA)
  • 88% of institutions used stress testing for risk factors affecting their credit portfolio, an increase from 79% in 2008, while 74% conducted stress testing for market risk in their trading book
  • 60% of executives considered their operational risk assessments and internal loss event data to be extremely or very well developed, an increase of 40% in 2008 (see below)

In all, Deloitte’s report is optimistic. It clearly shows financial institutions (finally) taking certain aspects of risk management, such as ERM, capital reserves, governance and, to an extent, technology risk assessments, very seriously.

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This is promising and can provide a certain amount of relief to those worrying about another catastrophic financial collapse of the U.S. economy. Of course, we can never say never, but with financial institutions continuing to fully embrace risk management in all its forms, we can all sleep a little better.

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The 9 Hallmarks of Successful ERM

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As anyone who has ever tried knows, implementing an ERM program is easier said than done. And getting one to yield any quantifiable results is even tougher.

It is not surprising, then, that more than a third of risk professionals recently surveyed by Aon categorized their ERM programs as “initial/lacking and basic.” For those folks, however, Aon has some advice.

Here are the nine hallmarks of any successful ERM program.

  1. Board-level commitment to ERM as a critical framework for successful decision making and driving value
  2. Dedicated risk executive in a senior-level position, driving and facilitating the ERM process
  3. ERM culture that encourages full engagement and accountability at all levels of the organization
  4. Engagement of stakeholders in risk management strategy development and policy setting
  5. Transparency of risk communication
  6. Integration of financial and operational risk information into decision making
  7. Use of sophisticated quantification methods to understand risk and demonstrate added value through risk management
  8. Identification of new and emerging risks using internal data as well as information from external providers
  9. A move from focusing on risk avoidance and mitigation to leveraging risk and risk management options that extract value

How does your program stack up?

Economic Crisis Advances Risk Management in India

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According to the Times of India, risk management has come into much greater in focus in India ever since the financial collapse rocked the global economy twelve months ago.

The global shockwaves following Lehman Brothers’ collapse have woken India Inc to the importance of sound risk management system to tide over future crises.

Despite the fact the India was less affected by the meltdown, companies here are pulling up their socks as the slump has demonstrated that risks are entwined and cut across boundaries.

It’s a brief article without many specific examples, but it touches on the fact that risk management in something that many companies now expect from all their units — and they expect them to report their findings to the CFO. All this looks like many businesses in the country are beginning to see that there are real benefits to holistic risk management.

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Much like their U.S. and European counterparts, Indian companies will undoubtedly struggle to turn this good idea into good practice, but the underlying concepts have to come first, and this looks like a positive sign in that a key driver of the developing world economy is moving towards incorporating better forethought throughout its private sector.

Most big players have sought international risk advisory firms like Marsh, to step up the internal control process of their portfolio companies.

“The global credit crisis has driven home the point that although US was the epicentre, its effect has been felt elsewhere too, in today’s inter-connected world. Risk management must factor inter-linkages and remote possibilities,” said Marsh India head Sanjay Kedia.
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“Low-probability and high-severity catastrophes like the recent financial turmoil or the Mumbai terror attacks do happen,” he said.

And when they do, hopefully many companies in India will be able deflect the blow.

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Bangalore, or The Silicon Valley of India, has seen large-scale economic expansion in recent years. Now, a focus in risk management is expanding there as well.