Enterprise Risk Management Program Research Articles

Research on the Identification, Evaluation and Response of Low Carbon Audit Risk of Resource-based Enterprises

Carbon audit has gradually caused the concern of the global academic circles. This paper analyzes the application of operating model analysis and carbon footprint tracing technology in the process of carbon resource based enterprises audit risk identification, and explain the specific assessment path of low carbon resource based enterprises audit risk by building a risk assessment system and adopting the fuzzy comprehensive method of risk assessment. Finally, a low carbon enterprise risk management program will be developed.

Structuring an Enterprise Risk Assessment Protocol: Traditional Practice and New Methods

AbstractIn a world that has become increasingly complex, enterprise risk management (ERM) has emerged as a practice for identifying reasonably foreseeable hazards that pose risks to an organization, both its physical and human assets. Due to the breadth and depth of factors that can impact an organization's risk portfolio, it is incumbent that the underlying risk assessment process that supports ERM embodies a holistic and systematic approach. This is easier said than done, however, as much of the effort in self‐acclaimed ERM programs remain entrenched in compartmentalized parts of the organization or ignore threats that are “outside of the box” of the operating environment to which management is accustomed. This environment therefore creates opportunities for key risks to go unnoticed. The authors propose a comprehensive, yet flexible framework for overcoming this challenge, an approach that can be utilized by both the public and private sector. A sample application is provided, using a free, web‐based tool developed as part of the initiative.

Pension Risk Management in the Enterprise Risk Management Framework

AbstractThis article presents an enterprise risk management (ERM) model for a firm that is composed of a portfolio of capital investment projects and a defined benefit (DB) plan for its workforce. The firm faces the project, operational, and hazard risks from its investment projects as well as the financial and longevity risks from its DB plan. The firm maximizes its capital market value net of pension contributions subject to constraints that control project, operational, hazard, financial, and longevity risks as well as an overall risk. The analysis illustrates the importance of integrating pension risk into the firm's ERM program by comparing firm value with and without managing pension risk with other risks in an ERM program. An ERM program considering pension effect integrates the risks of the operation and pension divisions and, thus, achieves diversification benefits between and within these two divisions. We also show how pension hedging strategies can impact the firm's net value under the ERM framework. While the existing literature suggests that a longevity swap is less expensive than a pension buy‐out because the latter is more capital intensive, this analysis shows that the buy‐out is more effective in increasing firm value.

Pension Risk Management in the Enterprise Risk Management Framework

This paper presents an enterprise risk management (ERM) model for a firm that is composed of a portfolio of capital investment projects and a defined benefit (DB) plan for its workforce. The firm faces the project, operational and hazard risks from its investment projects as well as the financial and longevity risks from its DB plan. The firm maximizes its capital market value net of pension contributions subject to constraints that control project, operational, hazard, financial and longevity risks as well as an overall risk. The analysis illustrates the importance of integrating pension risk into the firm’s ERM program by comparing firm value with and without integrating pension risk with other risks in an ERM program. We also show how pension hedging strategies can impact the firm’s net value under the ERM framework. While the existing literature suggests that a longevity swap is less expensive than a pension buy-out because the latter is more capital intensive, this analysis shows that the buy-out is more effective in increasing firm value.

The Combined Effect of Enterprise Risk Management and Diversification on Property and Casualty Insurer Performance

AbstractIn a well‐designed enterprise risk management (ERM) program, the firm integrates risk management into the strategic planning process, addressing strategic, financial, operational, and hazard risks under a single overarching process. This is particularly important to large financial firms, such as property and casualty (P&C) insurers, which face a diverse set of risks. Using a sample of P&C insurers with S&P ERM quality ratings from 2006 to 2013, we find that the quality of a firm's ERM is a significant determinant of P&C insurer performance and that, for firms with high‐quality ERM programs, product line diversification has a significant positive effect on performance.

Testing the effectiveness of ERM: Evidence from operational losses

Enterprise Risk Management (ERM) provides a novel approach to managing all risks faced by a firm as a portfolio. By forming a portfolio of risks firms can optimally choose strategies to hedge their overall risk. This study investigates ERM implementation across a broad spectrum of industries. In particular, we examine the effectiveness of ERM in improving firm internal controls by its impact on operational risk. Our findings suggest that ERM is effective in reducing both the frequency and severity of operational risk events. We find that firms with ERM programs on average experience a 63% reduction in the frequency of operational risk events and up to a 35% reduction in operational losses. The findings still hold after controlling for endogenous selection.

Implementation of a sustainable enterprise risk management framework: The Administrator on Duty model

Background: Today’s health care landscape requires a new standard of service delivery aimed at quality outcomes, cost-effective provisions of coordinated treatment, and access to equitable care. This standard has brought emerging risks that pose threats to the operational and financial well-being of health care organizations, especially safety net hospitals. The establishment of enterprise risk management (ERM) programs guided by the efforts of efficacious health care managers will promote deeper risk analysis, engagement of the entire health care organization, and structured, coordinated and cohesive mitigation responses to risk exposures.Objective: To establish and implement an ERM program using the Administrator on Duty (AOD) model that will promote a patient-centric paradigm of care while optimizing organizational performance and mitigating risk and exposure.Results: The AOD model significantly contributes to all phases of ERM, particularly risk identification, risk assessment, risk response and monitoring. The model, as perceived by both AODs and hospital senior leadership, provides tremendous benefits to a health care organization. These include, among many others, a substantial leadership presence, dynamic risk mitigation efforts, continuous education to staff and facilitation of problem solving and conflict resolution.Conclusions: The AOD program is a vital constituent of an ERM endeavor. AODs are pivotal to managing the global risk terrain of a health care organization and play a substantial role in promoting patient, staff and visitor safety while working to ensure potential and actual risk issues are addressed timely and appropriately.

Enterprise risk management in international construction firms: drivers and hindrances

Purpose – The specific purposes of this paper are: to identify the critical drivers for and hindrances to enterprise risk management (ERM) implementation; and to compare the influence of these factors on ERM implementation between large and small-medium (SM) Chinese construction firms (CCFs) in Singapore. Design/methodology/approach – A questionnaire survey was conducted and responses were received from 35 experienced managers in CCFs operating in Singapore. Findings – A total of 13 drivers and 22 hindrances were found critical to ERM implementation in Singapore-based CCFs. “Improved decision making” were the top influential driver, while “insufficient resources (e.g. time, money, people, etc.)” were the most significant hindrances. Additionally, despite significant differences in the mean scores of seven drivers and four hindrances, the large and SM CCFs agreed on the rankings of drivers and hindrances, respectively. Research limitations/implications – As the survey was performed with the Singapore-based CCFs, there may be geographical limitation on the identification of the critical drivers for and hindrances to ERM implementation. The sample size was still small, despite a relatively high response rate. Practical implications – The findings of this study allow the management to strengthen the positive influence from the drivers and overcome the challenges posed by the significant hindrances. Originality/value – Despite studies on ERM in various industries, few studies have attempted to disclose the factors driving and hindering ERM implementation in construction firms. Thus, this study expands the existing literature relating to ERM. An understanding of the drivers for ERM implementation enables the management to obtain sufficient support for the ERM program and strengthen the positive influence from the drivers. The identification of the hindrances allows the management to be clear about the challenges faced by the ERM program and take measures to diminish their negative influence and overcome them. Additionally, other construction firms can use the drivers and hindrances identified in this study to prepare their customized list of drivers and hindrances.

Determinants and Value of Enterprise Risk Management: Empirical Evidence From the Literature

AbstractThe development of an enterprise risk management (ERM) program enables companies to manage corporate risks in a holistic manner as opposed to the silo‐based perspective in traditional risk management frameworks. One main question in this regard is what factors drive the implementation of an ERM system in companies and whether ERM programs can actually create value once implemented. This article addresses these questions by conducting a comparative assessment of empirical evidence from the literature regarding the determinants of ERM and its value once implemented. In doing so we are able to illustrate differences in model specifications and the underlying data. Our literature study shows that particularly the company size and the level of institutional ownership are significantly positively related to the implementation of ERM in most empirical studies and, furthermore, that ERM generally has a (significant) positive impact on corporate value and performance (to a different extent and depending on the focus of the studies). However, geographic and/or industrial restrictions regarding the underlying data sets partly limit the generalization of the empirical results.

Enterprise risk management implementation in construction firms

Purpose – The purposes of this paper are to: first, identify the critical drivers for and hindrances to enterprise risk management (ERM) implementation in Singapore-based Chinese construction firms (CCFs); second, interpret the critical drivers and hindrances in tandem with organizational change theories; and third, provide possible strategies to strengthen the drivers and overcome the hindrances. Design/methodology/approach – A questionnaire survey was conducted and responses were received from 35 experienced managers in CCFs operating in Singapore. Findings – A total of 13 drivers and 25 hindrances with significant influence were identified. Of them, “improved decision-making” was the top driver, while “insufficient resources (e.g. time, money, people, etc.)” was the most influential hindrance. Research limitations/implications – As the survey was performed with the Singapore-based CCFs, there may be geographical limitation on the identification of the critical drivers for and hindrances to ERM implementation. The sample size was still small, despite a relatively high response rate. Practical implications – Specific strategies were identified to strengthen the drivers for ERM implementation and overcome the hindrances to ERM implementation. Originality/value – This study present the theoretical rational behind the critical drivers for and hindrances to ERM implementation. As few studies have attempted to investigate ERM in construction firms, this study contributes to the literature through interpreting ERM implementation from an organizational change perspective. The identification of the drivers and hindrances and the managerial implications provide practitioners and academics with valuable information as well as a clear understanding of how to consolidate ERM programs and overcome the hindrances.

Enterprise Risk Management Program Quality: Determinants, Value Relevance, and the Financial Crisis

This paper investigates factors associated with high‐quality Enterprise Risk Management (ERM) programs in financial services firms, and whether ERM quality enhances performance and signals credibility to the financial markets. ERM, developed with the assistance of the accounting profession, provides a framework and plan to integrate management of all sources of risk. Challenged by measurement difficulties common to research on management control systems, prior ERM studies present mixed findings. Using ERM quality ratings of financial companies by Standard & Poor's, we find that higher ERM quality is associated with greater complexity, less resource constraint, and better corporate governance. Controlling for such characteristics, we find that higher ERM quality is associated with improved accounting performance. Results show a market reaction to signals of enhanced management control from initial ERM quality ratings and rating revisions, and a stronger response to earnings surprises for firms with higher ERM quality. Focusing on the recent global financial crisis, our analysis suggests that there is no relation between ERM quality and market performance prior to and during the market collapse. However, returns of higher ERM quality companies are higher during the market rebound. Overall, results reveal that firm performance and value are enhanced by high‐quality controls that integrate risk management efforts across the firm, enabling better oversight of managers' risk‐taking behavior and aligning that behavior with the strategic direction of the company.

Message from the chair on introducing enterprise risk management (ERM) to a company

Enterprise risk management (ERM), as a theory and practice, has captured the attention of governance experts, boards of directors, regulators, rating agencies and senior management over the last 10 years. Unfortunately, the academic research to date on this topic has been meagre; however, there have been a number of leading practices that illustrate how ERM may be implemented in a simple and effective manner. This article takes the essential features of ERM and provides an imaginary speech that demonstrates what a Chair might say to fellow directors to announce the launch of an ERM program. It is not intended that this is the only way, or necessarily the best way, to launch ERM. Obviously, it should be tailored to each company, the intended audience and each Chair's style. This article draws on the author's 13 years of experience as a Chief Risk officer, as well as his extensive studies of ERM best practices. The success rate for successful implementation of ERM continues to be low. There is much confusion as to exactly what ERM is and how to best achieve value from it. It is expected that material such as this will help guide senior management and board members in understanding what ERM is and in their quest as to how to implement ERM in a simple and effective manner.

The Effect of the Enterprise Risk Management Implementation on the Firm Value of European Companies

We aim to investigate the impact of the adoption of an Enterprise Risk Management (ERM) system on the enterprise value and to discover which are the determinants of this choice. Several economic actors have decided to face the current economic and financial complexity shifting from a Traditional silo-based Risk Management approach (TRM) to a more comprehensive one, the so called Enterprise Risk Management (ERM). Some academics have tried to investigate the effects of the ERM implementation on firm value, mainly focusing on the financial industry. The results are still controversial. Moreover, there is no empirical evidence about the adoption of ERM programs among non-financial companies. The aim of our study is double: first, we try to understand if the ERM implementation affects firm value on a sample of 200 European companies, belonging to both financial and non-financial industries; second, we test which are the determinants of the adoption of an ERM system. We do this performing a fixed effects panel regression analysis (goal 1) and a fixed effects logistic analysis (goal 2). We find a positive statistically significant relation between the ERM adoption and firm value. As for the probability that a firm engages in an ERM protocol, we find that size, the company beta and profitability (ROA) are the statistically significant determinants.

An ERM Maturity Model

In the recent years, Enterprise Risk Management (ERM) has emerged as a new risk management technique aimed to manage the portfolio of risks that faces an organization in a integrated, enterprise-wide manner. Unlike traditional risk management, where individual risk categories are managed from a silo-based perspective, ERM involves an holistic view of risks allowing to take into account correlations across all risk classes. The academic literature on ERM is focused on two main aspects: the analysis of the factors that influence ERM adoption and its effects on firms performances. No studies have been conducted yet to propose robust and rigorous models to evaluate the quality, or maturity, of ERM programs implemented by firms. The aim of the research described in this paper is to fill this gap in the literature. In order to build a rigorous ERM maturity model, we have run an e-mail Delphi procedure involving a panel of worldwide experts on ERM and reached their consensus on the selection of a set of ERM best practice parameters, which are used to develop a structured questionnaire to be administered to firms. Experts consensus in obtained also on the scales and the scores for each questionnaire answer option. The output of the Delphi method is a scoring model that can be used to assess the maturity of an ERM program by administering a questionnaire composed of 22 closed-end questions to firms: answers are collected and scored, and all scores are combined in a single final score, the ERM Index (ERMi). The robustness of the model has finally been tested on a small sample of firms. We foresee two different uses of the ERMi maturity model, one by scholars for further quantitative research on ERM topics, and one by practitioners, as ERMi is suitable to be used by firms for a self-assessment of their ERM programs (internal use), and by consultancy firms, auditors and rating agencies (external use). The difference with other existing maturity models is its solid scientific base, the rigour with which it has been designed and the fact that it is derived from a Delphi procedure involving leading ERM experts who reached consensus on the model detailed design.

Determinants and Value of Enterprise Risk Management: Empirical Evidence from the Literature

The development of an enterprise risk management (ERM) program enables companies to manage corporate risks in a holistic manner as opposed to the silo‐based perspective in traditional risk management frameworks. One main question in this regard is what factors drive the implementation of an ERM system in companies and whether ERM programs can actually create value once implemented. This article addresses these questions by conducting a comparative assessment of empirical evidence from the literature regarding the determinants of ERM and its value once implemented. In doing so we are able to illustrate differences in model specifications and the underlying data. Our literature study shows that particularly the company size and the level of institutional ownership are significantly positively related to the implementation of ERM in most empirical studies and, furthermore, that ERM generally has a (significant) positive impact on corporate value and performance (to a different extent and depending on the focus of the studies). However, geographic and/or industrial restrictions regarding the underlying data sets partly limit the generalization of the empirical results.

The Effect of the Enterprise Risk Management Implementation on the Firm Value of European Companies

We aim to investigate the impact of the adoption of an Enterprise Risk Management (ERM) system on the enterprise value and to discover which are the determinants of this choice. Several economic actors have decided to face the current economic and financial complexity shifting from a Traditional silo-based Risk Management approach (TRM) to a more comprehensive one, the so called Enterprise Risk Management (ERM). Some academics have tried to investigate the effects of the ERM implementation on firm value, mainly focusing on the financial industry. The results are still controversial. Moreover, there is no empirical evidence about the adoption of ERM programs among non-financial companies. The aim of our study is double: first, we try to understand if the ERM implementation affects firm value on a sample of 200 European companies, belonging to both financial and non-financial industries; second, we test which are the determinants of the adoption of an ERM system. We do this performing a fixed effects panel regression analysis (goal 1) and a fixed effects logistic analysis (goal 2). We find a positive statistically significant relation between the ERM adoption and firm value. As for the probability that a firm engages in an ERM protocol, we find that size, the company beta and profitability (ROA) are the statistically significant determinants.

Enterprise Risk Management Program Quality: Determinants, Value Relevance, and the Financial Crisis

This paper investigates factors associated with high quality Enterprise Risk Management (ERM) programs in financial services firms, and whether ERM quality enhances performance and signals credibility to the financial markets. ERM, developed with the assistance of the accounting profession, provides a framework and plan to integrate management of all sources of risk. Challenged by measurement difficulties common to research on management control systems, prior ERM studies present mixed findings. Using ERM quality (ERMQ) ratings of financial companies by Standard & Poor’s, we find that higher ERMQ is associated with greater complexity, less resource constraint, and better corporate governance. Controlling for such characteristics, we find that higher ERMQ is associated with improved accounting performance. Results show a market reaction to signals of enhanced management control from initial ERMQ ratings and rating revisions, and a stronger response to earnings surprises for firms with higher ERMQ. Focusing on the recent global financial crisis, our analysis suggests that there is no relation between ERM quality and market performance prior to and during the market collapse. However, returns of higher ERMQ companies are higher during the market rebound. Overall, results reveal that firm performance and value are enhanced by high quality controls that integrate risk management efforts across the firm, enabling better oversight of managers’ risk-taking behavior, and aligning that behavior with the strategic direction of the company.

Enterprise risk management in the Middle East oil industry

PurposeThe purpose of this paper is to appraise the current status of enterprise risk management (ERM) in the Gulf Co‐operation Council (GCC) oil and gas entities to develop a practical, region‐specific, and systematic action plan for the GCC oil and gas industry that can transform the existing ERM models to a mature and robust framework.Design/methodology/approachThe paper reviews current relevant literature on Committee of Sponsoring Organization of the Treadway Commission ERM Framework; and enterprise wide risk framework within the precincts of the GCC oil and gas industry to identify the knowledge gaps which form the basis for the research questions. The paper then empirically investigates the GCC oil industry through six case studies, encompassing the six countries in the GCC (GCC comprising of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates). The case study has focused by exploring the ERM systemper sethrough comparative case studies to answer the research questions. The research questions and the work have been done from the perspective of the naturalistic (inductive) research paradigm.FindingsThis paper establishes the understanding of the current existing ERM models while identifying the determinants of ERM adoption and the most significant challenges for its implementation. Furthermore, the paper also develops the best practice approach for successful ERM implementation in the GCC oil and gas entities.Research limitations/implicationsThe use of a case study has been made precluding the use of other direct methods such as survey questionnaires. The analytical methods used are deductive and discursive in nature, limited to the nature of the methodology of case study used. Rigorous statistical methods could not be applied owing to the limitations of the case study method. The paper explores and compares the industry structure of oil and gas sector in GCC countries, for this purpose, only a few selected entities in the upstream and downstream oil and gas sector are discussed.Practical implicationsAlthough ERM is conceptually straightforward, its implementation in practice is not. Furthermore, ERM is accepted as a contemporary hot topic and also a board room priority in most industries. The present paper steers the way forward for an improved understanding of the ERM system in a strategic industry dealing with a strategic commodity.Originality/valueThere is a need for a proactive ERM program in the oil and gas industry and also a need for additional research especially in terms of its implementation. Nevertheless, an apparent caveat in the ERM system is that there is no standard approach to implementing and entities grapple with how they should go about putting together an ERM program. The findings provide useful and timely analysis of the GCC oil and gas industry from the perspective of implementation of an ERM framework which is contemporaneous business priority item in most entities in the GCC hydrocarbon sector.

Implementation of an Enterprise Risk-Management Program in a Community Teaching Hospital

As the complexity of healthcare and expectations of comprehensive and transparent public accountability heighten, so too must a hospital's approach to assessing and managing risk. Over a period of two years, the area of patient safety and risk at our hospital has moved from a traditional focus on clinical risk management to an enterprise-wide risk management approach. One of the first community hospitals to embrace enterprise risk management (ERM), St. Joseph's Health Centre, in Toronto, Ontario, has seen early benefits in this transformational journey. This article discusses our approach to the development of an ERM program, tools used and lessons learned.

Missed opportunities in performance and enterprise risk management

AbstractIs your organization missing opportunities to incorporate enterprise risk management (ERM) into its strategic planning and strategy management processes? This article addresses how an organization can ensure that its strategic planning process considers risk and risk management. How well, in other words, do your ongoing performance management reports include ERM program concerns? And are your ERM and strategy management or balanced scorecard (BSC) processes operated together or separately? © 2009 Wiley Periodicals, Inc.