Enterprise Risk Management Program Research Articles

INTEGRATING ENTERPRISE RISK MANAGEMENT (ERM): STRATEGIES, CHALLENGES, AND ORGANIZATIONAL SUCCESS

Implementing Enterprise Risk Management (ERM) is pivotal for organizations striving to navigate and excel within increasingly complex and volatile business environments. This paper explores the core principles of ERM and underscores its crucial role in achieving organizational objectives by enhancing decision-making, risk awareness, and resilience. It highlights the benefits and challenges of ERM implementation, with a strong emphasis on the empowering role of leadership in this process. It also emphasizes the necessity for strategic resource allocation, and effective integration into organizational processes. Additionally, the paper examines key factors that contribute to the success of an ERM program, such as adaptability and continuous improvement. Through real-world case studies, the paper illustrates how successful ERM implementation can significantly benefit organizations, demonstrating quantifiable improvements in operational performance and strategic outcomes. These discussions aim to provide a comprehensive understanding of the importance of ERM in modern business practices, advocating for its widespread adoption and continuous evolution to meet emerging business challenges.

Enterprise risk management and corporate tax planning

AbstractThis study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise's entire portfolio of risks. We hand‐collect data on ERM adoption for a sample of Standard & Poor's 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among firms with more business segments. Finally, our results suggest ERM adoption offsets an increase in opacity and tax uncertainty typically associated with tax avoidance strategies. Overall, we provide evidence that ERM allows firms to exploit tax avoidance opportunities through enhanced coordination and communication.

Development of risk inventory for hospitals in India

Introduction With the ever-increasing hazards and associated risks in healthcare, the healthcare facilities should have a comprehensive enterprise risk management program. Risk management in Indian Healthcare is nascent and not structured. With the increasing potentially compensable events, workplace violence, cybersecurity threats, complex accreditation standards, old infrastructure and ever-changing legal and political scenarios, the risk inventory is expanding, leading to litigations due to lack of mitigation strategies. This study focuses on developing a comprehensive organization wide enterprise risk inventory for the healthcare facilities in India. Method Secondary data from published studies were collated and 25 risk factors were identified. Interviews with 12 domain experts further identified 38 context and country-specific risks. The identified 63 risks were sent to 20 senior healthcare risk managers. Forty-three risks were unique and were validated by the senior healthcare risk managers. Twenty risks out of 63 identified had similar meaning. These 20 risks were reworded, rephrased and merged into eight risks by the senior healthcare risk managers. The 51 risks were endorsed by the 12 domain experts. The identified risk factors were surveyed among the risk managers from various hospitals to understand the importance and ranking of the risk in the Indian context. Results Sentinel events/Never events appeared in different rank orders and seems to be among the top five risks as perceived by professionals in India. Second highest ranked risk was ‘Staff attrition’. The data analysis showed the different attributes of survey participants, such as the size of the organization with respect to bed capacity and length of time working in the field of risk management. Conclusion The results provide valuable insights into the perception of risk based on hospital size and the educational background of risk managers. This inventory may help hospitals develop strategies for mitigating, controlling and monitoring risks for better hospital management.

Does enterprise risk management benefit manufacturing firms? Evidence from China

It is observed that Enterprise risk management (ERM) framework has been adopted by some manufacturing firms in China in the past years. To investigate the effectiveness of ERM, data of A-share listed manufacturing firms in Shanghai and Shenzhen stock exchange during 2010-2019 are adopted from Wind database and CSMAR database, two large domestic databases, to examine the impact of ERM on value of manufacturing firms. Treatment effects model and genenralised method of moments (GMM) are employed to derive the empirical results. Our results show that adoption of ERM can add value to the firms, and firms benefit more from high-quality ERM program. Furthermore, the impact of ERM seems to be more significant among the manufacturing firms with smaller scale, or stronger institutional shareholding, or international business. Our findings encourage the manufacturing firms to implement ERM program and improve the program to achieve its targets.

Enterprise Risk Management Program - ERM: The case of implementation in an Oil and Gas company

Enterprise Risk Management Program - ERM: The case of implementation in an Oil and Gas company

Enterprise Risk Management Maturity: A Clinical Study of a U.S. Multinational Nonprofit Firm

This study, which is based on actual events, presents a dynamic analysis of the development, implementation, and post-implementation review of establishing an enterprise risk management (ERM) system for a U.S. multinational nonprofit firm over a 5-year period, 2015–2020. Using the Risk and Insurance Management Society Risk Maturity Model (RIMS RMM), questionnaire-based risk data and multi-dimensional risk mapping indices are used to identify and prioritize the firm’s key strategic risks leading to the development of mitigation strategies whose performance are reviewed post ERM implementation, including during the 2020 Coronavirus pandemic. The results reveal that the firm’s risk management system has been ad hoc and uncoordinated. Post-implementation review of the ERM program shows improvements in financial and operating positions resulting from risk diversification, enhanced profitability, exploitation of natural hedges, and improved board governance. The results further show that the recommended mitigation strategies have been effective in managing the adverse impact of the pandemic. Overall, the evidence offered in this study provides further support on the valuation benefits of ERM maturity within a real-world environment.

Does Your Organization Assess Risk Culture? If Not, It Should. Here's How.

Risk culture is an important subset of organizational culture that Enterprise Risk Management (ERM) program managers should assess. Insights into the organization's risk culture can be found in behavioral metrics. Valuable behavioral metrics are present in workforce climate assessments such the Federal Employee Viewpoint Survey (FEVS). Training evaluation frameworks, such as the Kirkpatrick Model, set the foundation for collecting and analyzing behavioral metrics. These sources of behavioral metrics should be utilized in making ERM program decisions, especially regarding risk management policies, training, and communications. A good risk culture assessment offers clues into the risk mentality of decision makers in the organization. ERM program managers would serve their organizations well by knowing the risk mentality of people before important decisions are made.

Enterprise Risk Management: Theory and Practice

The Chief Risk Officer of Nationwide Insurance teams up with a distinguished academic to discuss the benefits and challenges associated with the design and implementation of an enterprise risk management program. The authors begin by arguing that a carefully designed ERM program—one in which all material corporate risks are viewed and managed within a single framework—can be a source of long‐run competitive advantage and value through its effects at both a “macro” or company‐wide level and a “micro” or business‐unit level.At the macro level, ERM enables senior management to identify, measure, and limit to acceptable levels the net exposures faced by the company. By managing such exposures mainly with the idea of cushioning downside outcomes and protecting the firm's credit rating, ERM helps maintain the firm's access to capital and other resources necessary to implement its strategy and business plan.At the micro level, ERM adds value by ensuring that all material risks are “owned,” and risk‐return tradeoffs carefully evaluated, by operating managers and employees throughout the firm. To this end, business unit managers at Nationwide are required to provide information about the major risks associated with all new capital projects—information that can then be used by senior management to evaluate the marginal impact of the projects on the firm's total risk. And to encourage operating managers to focus on the risk‐return tradeoffs in their own businesses, Nationwide's periodic performance evaluations of its business units attempt to reflect their contributions to total risk by assigning risk‐adjusted levels of “imputed” capital on which project managers are expected to earn adequate returns.The second, and by far the larger, part of the article provides an extensive guide to the process and major challenges that arise when implementing ERM, along with an account of Nationwide's approach to dealing with them. Among other issues, the authors discuss how a company should assess its risk “appetite,” measure how much risk it is bearing, and decide which risks to retain and which to transfer to others. Consistent with the principle of comparative advantage it uses to guide such decisions, Nationwide attempts to limit “non‐core” exposures, such as interest rate and equity risk, thereby enlarging the firm's capacity to bear the “information‐intensive, insurance‐specific” risks at the core of its business and competencies.

The Effect of Enterprise Risk Management on Ameliorating Competitive Advantage: A Cross-Sectional Study of Software Houses in Pakistan

In the current dynamic environment, organizations need a more anticipatory and effective risk management system. Implementing the holistic Enterprise Risk Management (ERM) process will perceive, analyze, and assess risks as they must be regarded from the entire enterprise’s perspective. The research aims to empirically analyze the effect of ERM practices on the Competitive Advantage (CA) and examine the moderating role of Organizational Culture (OC) in the Software industry of Pakistan. The primary data were obtained from 250 respondents through the questionnaire method. The validity and reliability were analyzed by using Structural Equation Modeling Analysis, PLS Algorithm, and Bootstrapping. The results show that the implementation of ERM has a significant effect on firms’ competitive advantage. The analysis supports the hypothesis and identifies the positive moderating effect of organizational culture in carrying out ERM programs, which can enhance organizational competitiveness. This study is useful for managers to help them in the planning and decision-making phase so that they can act responsibly in a rapidly changing environment and consider organizational culture as one of the key factors of the ERM program that helps accomplish organizational competitiveness.

Quality assessment of enterprise risk management programs

Enterprise risk management (ERM) is an important process for organizations to manage risks and identify opportunities in a holistic manner. Earlier studies have explored antecedents and consequences of ERM programs considering organizational, procedural, technical, and other related factors. However, limited evidence is available regarding the effectiveness of ERM programs. Using semi-structured interviews with ERM experts, this paper explores how experts assess the efficacy and quality of ERM programs and whether they adopt project management (PM) and total quality management (TQM) tools for implementing and improving the ERM program. Further, the Interpretive Structural Modeling (ISM) technique is used to explore causality among factors influencing the efficacy of an ERM program. The findings of this study provide useful insights to both practitioners and researchers to better understand the importance of assessing and enhancing the quality of ERM programs, and establish cause-effect relationships across factors influencing the efficacy of such programs.

Enterprise Risk Management Program Effectiveness, Determinants, Execution and effect on Financial Performance: Evidence from Global Takaful Industry

Enterprise Risk Management Program Effectiveness, Determinants, Execution and effect on Financial Performance: Evidence from Global Takaful Industry

Enterprise risk management and accruals estimation error

We examine the association between an enterprise risk management (ERM) program and accruals estimation error. ERM helps firms identify, assess, and manage risks at the enterprise level. We argue that through ERM managers gain a better understanding of firm processes and can more accurately estimate accruals. Using a sample of 11,538 firm-year observations from 2007 to 2011, we measured accruals estimation error and the choice to disclose an ERM program simultaneously using full information maximum likelihood. We find that having an ERM program is negatively related to accruals estimation error and that having an ERM program is positively associated with signed abnormal accruals, suggesting that our findings are not due to reduced earnings management. Our results are consistent with the theory that ERM improves managers’ understanding of the firm and its potential risks. Our study is relevant to academics how study ERM and practitioners and managers who are considering implementing ERM.

Enterprise Risk Management and Corporate Tax Avoidance

This study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise’s entire portfolio of risks (COSO 2004, 2017). We expect that enhanced coordination across business units as a result of ERM allows firms to exploit tax avoidance opportunities and increase tax effectiveness. We hand-collect data on ERM adoption for a sample of S&P 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates (ETRs) and higher tax effectiveness than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among financially constrained firms, suggesting that, when faced with financial constraints, firms with ERM are better able to seek out alternative cash sources.

Enterprise Risk Management: Benefits and Challenges

In this paper, we have provided the introduction to the Enterprise Risk Management (ERM) process by defining ERM, highlighting key keys of an ERM program in an organization, and discussing the COSO and ISO ERM frameworks. Reasons for ERM implementation by firms are also discussed along with the benefits that the organizations gain by integrating their strategic planning with the ERM process. Financial, infrastructure, reputational, and marketplace related benefits are discussed and shown to be leveraged by the firms that implement an effective ERM practice. The key challenges along with their solutions are discussed in this paper where it is shown that ERM practice must be established and implemented keeping best practices in mind so that any unforeseen failures in the future can be avoided. The paper further highlights the important hallmarks of an effective ERM program where nine major points are discussed that came out from a survey addressing the ERM best practices and features. Finally, a case study of the LEGO company is presented.

A Case Study Heller Financial

First, the goal of this paper is to examine this case study about Heller Financial as they focus on enterprise risk management (ERM), credit risk (CR) and operational risk management (ORM). Heller Financial began implementing the process that would evaluate the overall procedures that now makes their ERM program successful. Heller decided that they would adapt to risk management a process that would eventually lead senior management to create a Credit Risk Officer (CRO) as well as, the creation the (ORO) Operational Risk Officer. Both of these officers, Heller believes will contribute to the sustainability at Heller Financial, in an attempt to avoid credit risk exposure, management risk exposure, and operational risk exposure.

Managerial Career Concerns and Enterprise Risk Management Adoption

Enterprise Risk Management (ERM) is the approach of managing all risks faced by a firm in an integrated, holistic fashion. This research analyzes factors that influence a firm’s decision to start an ERM program. We argue that top management’s decision to adopt ERM is influenced by managerial career concerns about keeping their jobs. ERM adoption reduces the volatility of a firm’s earnings and, hence, improves the informativeness of earnings as a signal of the manager’s ability. The career concerns view predicts that a manager with a high initial reputation should only adopt ERM after a period of poor performance. Consistent with this prediction, we find that negative changes in past firm performance increase a firm’s probability to adopt ERM and are accompanied by significant improvements in the quality of a firm’s risk management process.

Development of an enterprise risk inventory for healthcare

BackgroundThe first phase of an enterprise risk management (ERM) program is the identification of risks. Accurate identification is essential to a proactive and effective ERM function. The authors identified a lack of such risk identification in the literature and in practical cases when interviewing the chief risk officers from healthcare organizations. A risk inventory specific to healthcare organizations that includes detailed risk scenarios and risk impacts currently does not exist. Thus, the objective of this research is to develop an enterprise risk inventory for healthcare organizations to create a common understanding of how each type of risk impacts a healthcare organization.MethodERM guidelines and data from 15 interviews with chief risk officers were analyzed to create the risk inventory. The identified risks were confirmed through a survey of risk managers from a range of global healthcare organizations during the ASHRM conference in 2017. Descriptive statistics were developed and cluster analysis was performed using the survey results.ResultsThe risk inventory includes 28 risks and their specific risk scenarios. Cyberattack was ranked as the principal risk by the participants, followed by sentinel events and risks associated with human capital management (organizational culture, use of electronic medical records and physician wellness). The data analysis showed that the specific characteristics of the survey participants, such as the length of time working in risk management, the size of the organization, and the presence of a school of medicine, do not impact an individual’s opinion of the importance of the risks identified. A personal background in risk management (clinical or enterprise) was a characteristic that showed a small difference in the perceived importance of the risks from the proposed risk inventory.ConclusionsIn addition to defining specific risk scenarios, the enterprise risk inventory presented in this research can contribute to guiding the risk identification phase of an ERM program and thereby support the development of a risk culture. Patient data security in hospitals that operate with high levels of technology is fundamental to delivering high quality and safe care to patients. At the top of the risk ranking, the identification of cyberattacks reflects the importance that healthcare risk managers place on this risk by allocating time and other resources. Exploring opportunities to improve cyber risk management and evaluating the benefits of using the risk inventory at the beginning of the risk identification phase in an ERM program are suggestions for future studies.

Developing risk management dashboards using risk and quality measures: A visual best practices approach.

Because quality measures are ubiquitous, health care risk management leaders often use them as a proxy for risk management measures. While certain quality measures adequately reflect some aspects of risk management, they are neither a perfect nor complete substitute for well-developed and comprehensive risk management measures. Using a comprehensive approach consisting of quality measures, risk measures, and measures that are less amenable to classification would be the best approach. Identifying the most powerful and informative measures, designing the most appropriate dashboards, and incorporating visual best practices are crucial steps required for evaluating the effectiveness and value of an enterprise risk management program. The authors explain the terms and concepts, review the measures available in the literature, propose new measures, discuss visual best practices, and provide sample dashboard components.

Does the hiring of chief risk officers align with the COSO/ISO enterprise risk management frameworks?

PurposeThere are two main industry-sanctioned enterprise risk management (ERM) models, that is, COSO 2004 and ISO 31000:2009, that firms refer to when implementing ERM programs. Taken together, the two ERM models specify that firms should implement ERM programs to meet a strategic need, improve operations and reporting or to comply with government regulations or industry best practices. In addition, the focus of ERM implementation should be either the subsidiary, business unit, division, firm/entity or global level. The purpose of this study is to investigate whether firms are aligning their ERM implementations with these tenets: strategy, operations, reporting, compliance and the level of implementation.Design/methodology/approachThe proxy for ERM implementation is the hiring of a Chief Risk Officer (CRO). The research data come from a sample of 122 US firms that issued a press release following the hiring of a CRO between 2010 and 2014. The press releases were retrieved and aggregated through content analysis in LexisNexis Academic.FindingsThe results reveal that many ERM implementations are occurring at the firm/entity level, and with the exception of reporting, firms consider ERM to be a strategic firm resource capable of improving business operations and compliance initiatives.Originality/valueThere is a dearth of research studies specifically investigating whether ERM programs adopted by firms are aligned with the specification of COSO 2004 and ISO 31000:2009 frameworks. The apparent lack of a clear understanding of the alignment between the firm ERM programs and the industry’s ERM frameworks may limit the development and implementation of ERM and the eventual realization of the benefits associated with a successful ERM implementation.

Enterprise Risk Management and firm performance: an integrated model for the banking sector

This study investigates how the implementation of Enterprise Risk Management program affects the performance of firms using an Enterprise Risk Management model for the banking sector and an integrated model for measuring Enterprise Risk Management index used in the study by Mukhtar and Soliman (2016). Ten listed commercial banks were selected with the Enterprise Risk Management index as the main independent variable, with Return on Average Equity (ROAE), Share Price Return (SPR) and Firm Value (FV) used as three separate dependent variables. The study provides strong evidence of a positive relationship between Enterprise Risk Management implementation and performance in the Nigerian banking sector. The findings and conclusions of this study are consistent with those of other studies that used data from different industries, providing a basis from which to generalize the findings from this study to firms in other industries.