Enterprise Risk Management System Research Articles

Triangulating Risk Profile and Risk Assessment: A Case Study of Implementing Enterprise Risk Management System

Establishing an enterprise risk management (ERM) system is widely viewed as providing firms with the tools and processes needed to build resilience and expertise, enabling them to manage the consequences of crises that have led to the collapse of major firms across different industries globally. Intended for use in advanced accounting, auditing, and finance courses, this case study (of a true event) describes the development and implementation of an ERM system for a U.S. multinational nonprofit firm during the 2015–2021 period. The case study’s main learning objectives are several-fold. First, couched within the recent economic environment, it informs students on some of the more important academic and applied research on corporate risk management. Second, students will learn to analyze the content of a questionnaire designed to capture the integrated effects of the firm’s risk culture, risk structure, risk governance, and control for establishing its risk profile. Third, they will learn to create and apply multi-dimensional risk indices to measure and prioritize the firm’s risk exposures. Finally, the last learning outcome focuses on strategies to triangulate the firm’s overall risk profile and risk prioritization results to construct mitigation strategies that build resilience and create value through risk diversification, information signaling, the exploitation of natural hedges, and enhancing the board’s governing efficiency. The nonprofit nature of the firm in this case study introduces no methodological or conceptual constraints or limitations in applying the proposed risk management methodologies to for-profit or publicly traded firms.

Managing cyber risk in the financial sector: Insights from a case study

Purpose: This article focuses on cyber risk as an emerging issue within the risk management process and the internal control system in the financial sector. It in-vestigates whether cyber risk management (CRM) is (dis)integrated into traditional enterprise risk management (ERM) and analyzes the external dynamics affecting the CRM design. Design/methodology/approach: This article draws upon institutional theory and the concept of boundary objects. The research examines a listed Italian bank and gathers the data from semi-structured interviews, direct observations, meet-ings, and archival sources. Findings: The findings underline that cyber risk rationale plays a crucial role in the CRM process. The interplay between institutional complexity and the need to manage cyber risk is critical for a bank to have a stable and flexible infrastructure. The knowledge boundaries related to the cyber risk culture require further cyber risk talk. Originality/value: This research furthers the understanding of cyber risk and CRM as an integral part of the ERM and internal control systems in the financial sector, in which there is a shortage of case studies. The financial sector is highly regulated, and managing cyber risk has become crucial as banks usually deal with enormous amounts of personal and sensitive data stored on networks and in the cloud. Practical implications: This case study emphasizes the crucial role of CRM in the identification and reporting of cyber risk information in annual reports.

СОВРЕМЕННЫЕ ЗАРУБЕЖНЫЕ НАПРАВЛЕНИЯ ИССЛЕДОВАНИЙ В ОБЛАСТИ УПРАВЛЕНИЯ РИСКАМИ ПРЕДПРИЯТИЙ

The article presents the results of an analysis of modern foreign scientific sources on enterprise risk management. Based on bibliographic analysis, it is shown that in setting research goals and in practical activities in risk management, there has been a paradigm shift and a change in approaches to ways to solve this problem. The main trend is an increase in research and practical developments based on an integrated approach to identifying and analyzing risks, as well as building an enterprise risk management system. There has also been increased interest in studying the relationship between enterprise performance and the practice of using a corporate risk management system. During the research, key directions in the development of the concept of enterprise risk management were highlighted, and shortcomings and gaps in existing research were revealed. It was revealed that the ambiguity in the interpretation of risks, as well as the influence of an integrated enterprise risk management system and its impact on key performance indicators of enterprises (efficiency, market value, competitiveness) in the scientific and empirical literature has led to a significant expansion of areas of research within the framework of solving the problem of risk management.

РИЗИК-МЕНЕДЖМЕНТ В СИСТЕМІ ЗАБЕЗПЕЧЕННЯ СТАЛОГО РОЗВИТКУ ПІДПРИЄМСТВА В УМОВАХ НЕВИЗНАЧЕНОСТІ

The article examines the role of risk management in the system of ensuring the sustainable development of the enterprise in uncertain conditions. The increasing uncertainty of doing business has resulted in the need to develop and implement effective tools to ensure the protection of the enterprise from various types of risks. The purpose of the article is to provide a summary of the theoretical and methodological advancements in enterprise risk management in uncertain conditions to ensure its sustainable development. Scientific approaches to the interpretation of the essence of the concepts "risk" and "risk management" are summarized and an author's approach to their interpretation is proposed. It is determined that risk management is a dynamic process, the effectiveness of which depends on the speed of response to changes in market conditions, the financial condition and economic situation of the management object. The sequence of stages of enterprise risk management is validated. In particular, the accumulation of information about the situation; diagnosis of the current situation; development of alternative options for management solutions; management decision-making; implementation of management decisions. The prerequisites for ensuring effective risk management of enterprise are defined. To ensure sustainable development, the common features inherent in all models of the enterprise's risk management system are determined. It is proposed to limit the risk at each stage of development of the risk situation. It was established that the effectiveness of risk management is directly related to the reasonableness of choosing a set of measures to prevent and/or minimize risk. Proposals are developed to improve the efficiency of enterprise risk management in conditions of rapid change of environmental factors. It is concluded that in a rapidly changing external environment, the determining prerequisites for ensuring the sustainable development of domestic enterprises are the integration of the risk management system into the overall management system of the enterprise and the formation of the correct perception of risk in its managers.

УПРАВЛІННЯ РИЗИКАМИ НА ПІДПРИЄМСТВІ В УМОВАХ ТРАНСФОРМАЦІЙНИХ ЗМІН

This article examines the peculiarities of risk management at the enterprise in the conditions of transformational changes. The analyzed factors require constant work in the direction of improving the theoretical and practical aspects of risk management at the enterprise. The interpretation of the concept of risk in accordance with the processes of the enterprise's economic activity is determined. The classification of risks depending on the signs of occurrence is considered in detail. The risk management system is characterized as identification with a certain science or art of ensuring the effective functioning of economic entities. Strategic and tactical risk management goals are defined. The object of enterprise risk management and the subject of enterprise risk management have been established. The strategy of combating risks at the enterprise is characterized. Directions for improving the enterprise's risk management system in conditions of transformational changes are provided. The variety of areas of economic activity, rapid changes in the world economy, the increase in the influence of internal and external aspects of functioning in the conditions of market relations, limited resource and financial support – all these phenomena require a rapid and adequate response from modern enterprises and, accordingly, the development of a high-quality risk management strategy accompanying the listed factors. The problem of risk management becomes extremely urgent in the conditions of ensuring the economic and personnel security of the enterprise, which, in turn, requires regular and uninterrupted risk management by competent specialists who are able to qualitatively solve problems of this nature and minimize the probability of receiving losses. Taking into account the changing economic and political conditions of today, risky situations arise in the activities of any enterprise constantly. That is why it is necessary in all spheres of business to apply a risk management system both at the level of individual divisions and at the enterprise as a whole. That is, thanks to this, it is possible to prevent losses and strengthen the company's competitive position on the market.

Evaluation of the critical success factors of dynamic enterprise risk management in manufacturing SMEs using an integrated fuzzy decision-making model

To succeed, a firm essentially needs to take the right amount of risk. Thus, the great significance of risk management has attracted many researchers to focus on how to implement enterprise risk management (ERM) systems most effectively. Generally, smaller entrepreneurial firms have to cope with this challenge more informally. Most manufacturing small and medium-sized enterprises (SMEs) are family companies; as a result, family dynamics greatly impact how such companies do business. The q-rung orthopair fuzzy set (q-ROFS) provides a wide window for the preference elicitation of decision-makers (DMs). Inspired by the advantages of the q-ROFS, in the current paper, a novel decision framework, the q-ROF-entropy-rank sum (RS)-additive ratio assessment (ARAS), called the “q-ROF-entropy-RS-ARAS” approach, is developed. The q-ROF-entropy-RS approach is applied to compute the weights of critical success factors (CSFs) for dynamic ERM in SMEs, and the q-ROF-ARAS model is used to assess enterprise preferences. An empirical case study is conducted to evaluate the CSFs for dynamic enterprise risk management in SMEs. Additionally, the comparison and sensitivity investigation are carried out to show the superiority of the developed framework.

The integration between enterprise risk management and performance management system: managerial analysis and conceptual model to support strategic decision-making process

The integration between Enterprise Risk Management (ERM) and Performance Management System (PMS) has become a crucial process for managing environmental complexity in companies. In this context, in order to contribute to the research field, this paper follows two purposes: (1) to identify the most relevant risk dimensions, and connected risk drivers, perceived in managerial practices; and (2) to provide a suitable way to integrate ERM and PMS in supporting the strategic decision-making process. Based on semi-structured interviews with a total of 75 senior and middle managers from 25 different Italian companies, the authors developed a conceptual model to support the corporate transition to integrate ERM and PMS processes, built on a specific set of Key Risk Indicators (KRIs) that can enable them to achieve economically and environmentally sound performance.

Evolution of Energy Companies’ Non-Financial Disclosures: A Model of Non-Financial Reports in the Energy Sector

In the 21st century, the disclosure of non-financial information in non-financial reports (N-FRs), in particular in Corporate Social Responsibility reports (CSRRs), integrated reports (IRs), and activity reports (ARs), has a global dimension, and the quality and scope of such disclosures affects both a wide range of stakeholders and the global economy. In the last decade, changing trends, considerations, as well as economic, legal and social factors have significantly influenced the content of corporate disclosures. In the context of N-FRs, special attention should be paid to the energy sector, which is in many ways essential for both the domestic and global economy. Therefore, its functioning also attracts the attention of researchers. The objective of this paper is to show the practical aspects of N-FRs and to assess the quality of reports submitted by companies in the Polish energy sector. The authors assessed the quality of non-financial information contained in the reports of energy sector companies in terms of four key management areas: Environmental Management System (EMS), Quality Management System (QMS), Enterprise Risk Management System (ERMS), and Corporate Governance Principles (CGPs). On the basis of their analysis of all CSRRs and IRs submitted by Polish energy sector companies in Poland in 2010–2020, the authors propose a model for the disclosure of information on these systems. Standardized reporting on these key management areas in the energy sector will improve the quality and usefulness of information from the perspective of all stakeholders. A model like this may be useful in many countries that manage their energy sectors in a similar way, such as Central and Eastern Europe (CEE) and other developing countries.

How corporate social responsibility mediates the relationship between corporate reputation and enterprise risk management: evidence from Spain

Enterprise risk management (ERM) systems lessen the probability of risks harming a firm’s reputation for a number of reasons. First, a high-quality ERM system makes it less likely a firm will suffer a risk-based reputational crisis. Second, ERM systems help companies to behave more responsibly towards all stakeholders, thereby ensuring firms meet stakeholders’ expectations. Third, when a crisis stemming from an uncontrollable risk occurs, a high-quality ERM system helps to reduce the negative impact on reputation because stakeholders will not attribute guilt to a firm which has acted responsibly in its risk management. In this research, we explore the link between corporate reputation and ERM systems together with the role played by corporate social responsibility (CSR) performance as a mediator. Our results support the notion that ERM system quality enhances CSR performance as well as corporate reputation. The results also confirm that ERM systems have a positive impact on corporate reputation via the mediating effect of CSR performance. Companies should therefore use risk management policies to bolster both their CSR and their reputation.

DETERMINANTS OF ENTERPRISE RISK MANAGEMENT (ERM) EFFECTIVENESS

This study examines determinants of enterprise risk management (ERM) effectiveness.Previous studies suggest that find evidence supporting an indirect effect of risk awareness onRM effectiveness. Furthermore, there is a need for an integrated approach to ERM. Based onsurvey data, the reserachers find evidence supporting an indirect effect of risk awareness onRisk Management (RM) Effectiveness. The study supports the use of risk tools strengthens therelationship between risk awareness and RM effectiveness. Moreover, risk awareness has apositive effect on RM through strategy integration, which helps managers to better recognizeand evaluate the risks. There is an indirect effect of risk awareness to ERM through risk tools.This study contributes to management accounting that there is a need of more intensesocialization and understanding to increase risk-conscious behavior in organization. This willlead to important information to determine risk awareness effectives. This study also has itslimitations. First, despite the sample size that relatively small, the sufficient to perform theintended analysis. Second, there may be other characteristics of ERM processes that were notreflected in this study. Future research could explore the aspects of ERM with more specificrespondents, such as those involved in initiating risk management programs and relevantregulators. Another area for future research is more specific factors that determines to thesuccess of an ERM system.

Qualitative Analysis of Enterprise Risk Management Systems in the Largest European Electric Power Companies

Enterprise risk management (ERM) is an important element of an efficient and comprehensive corporate governance system. It represents a combination of activities that minimise the negative impacts of the risk exposures on the company’s value and long-term corporate sustainability. Recently, there has been a growing awareness on the role and importance of the risk management function. Such trends are partly driven by the consequences of the last economic and financial crisis on the one hand, and on the other by legal and regulatory requirements. The economic downturn caused by the COVID-19 pandemic, volatility in the energy markets and increased uncertainty expected in the upcoming period reiterate the importance of timely risk management practices, because organisations with developed risk management systems are more resilient in case of crisis. This paper analyses the organisation and level of development of ERM systems in the ten largest European electric power companies. The companies’ data on risk management practices are collected from annual reports and analysed by applying Content Analysis (CA), searching for 29 characteristics of a developed ERM system. Research results reveal that ERM in the largest EU electric power companies can be considered as advanced as it applies the five dimensions of the COSO 2017 framework. The analysis confirms the existence of 27 out of 29 characteristics of a developed ERM system, confirming that these characteristics are rooted not only in the relevant ERM theory, but also in the practice of large and successful electric power companies.

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.

Underpinning Hawley’s Risk Theory of Profit on Risk Intelligence and Sustainability Relations of SMEs in Nigeria

Sustainable development is one of the topical issues posing a global challenge to the business world. To remain successful in today's competitive business environment, Small and Medium-Scale Enterprises (SMEs) must find a way to exist by adapting to dynamic sustainability challenges. The study aimed to examine Hawley’s Risk Theory of Profit's underpinning role in explaining the connection between Risk Intelligence (RI) and SMEs’ sustainability (SUS). It was understood that risk could pose both opportunities and threats to business, and therefore, proactive detection is paramount to address the risk capable of ridiculing sustainability. Therefore, we proposed integrating the moderating role of financial performance in the relationship between Nigerian SMEs' risk intelligence and sustainability. The study found Hawley’s theory relevant to risk and sustainability tradeoff. Previous studies proxied risk intelligence by knowledge management, financial literacy, and risk-taking propensity, which paved the way for developing a framework for attaining sustainable SMEs in Nigeria. We concluded that SME’s sustainability could be ensured by effectively managing inherent risks and should be incorporated into Enterprise Risk Management (ERM) systems.

A Model of Risk Information Disclosures in Non-Financial Corporate Reports of Socially Responsible Energy Companies in Poland

Risk management is critical for corporate finance management systems, in addition to corporate social responsibility (CSR) and sustainable development (SD) programs. Stakeholders need risk information to make informed judgments as to their involvement. No studies exist to date concerning disclosure of non-financial and financial risks in corporate annual statements and Polish strategic sector company reports. The authors sought to determine whether energy companies disclosed risks in non-financial annual reports in 2011–2020 (e.g., CSR, integrated, and board activity reports), and whether one can assess threats, including business activity risks and SD, based on these reports. We assessed the reports of all large Polish energy companies on a three- and five-degree scale to develop a model for risk information disclosures. We have three key empirical findings. Only half the analysed companies disclose annual financial data, threats, and risks. Less than half have implemented and operate enterprise risk management systems. The current ‘soft’ regulatory solutions give energy companies appreciable risk disclosure options, which often is counterproductive. We suggest developing a single integrated European Union (EU) regulation (e.g., directives, standards, or official principles) for non-financial risk disclosures. Our model classifies Polish energy company risks to business activity operations and risk management systems. Other sectors can use this universal model. Our results constitute progress in identifying company risks and may encourage continuing studies of other energy companies, especially in Central and Eastern Europe (CEE), which should be intensively developed. Research should also occur in other strategic sectors.

Key Success Factors of Enterprise Risk Management Systems: Listed Polish Companies

Purpose: The main purpose of the article is to determine the key success factors of enterprise risk management systems, understood as the characteristics of these systems that have the greatest impact on the effectiveness of their functioning. Methodology: Bearing in mind the most accurate determination of key success factors of enterprise risk management systems, I used several research methods. The conducted research was divided into four stages: (1) literature review, (2) financial statements analysis, (3) individual in-depth interviews, and (4) anonymous surveys. The research embraced enterprises operating in Poland. Findings: Based on the literature analysis, in-depth interviews, and conducted surveys, a list of risk management systems’ success factors was created and sorted in the order from the most important ones – that have the greatest impact on the success of risk management – to the least important ones. Additional analysis of financial statements of all WSE-listed companies allowed me to discern that few of the surveyed companies use mature modern ERM systems, and it enabled me to identify a group of companies that qualified to participate in the survey. Moreover, a statistically significant positive correlation appeared between the degree of key success factors’ implementation and the overall ERM implementation’s impact on the organization, while a statistically significant negative correlation emerged between the overall impact of ERM implementation on the organization and the degree of ERM implementation goals’ achievement, but also between the degree of the implementation of key success factors and the degree of the ERM implementation objectives’ implementation. Moreover, I noted that the fact of using individual features has no significant impact on the assessment of a given feature by respondents. Implications: All factors included in the study are success factors of risk management systems. However, the surveys’ results suggest a different level of individual factors’ significance, thus a different degree of these factors impact on risk management success. Originality/Value: The article presents an original set of key success factors in risk management systems, created based on my own research. The obtained research results can be used by managers willing to implement or develop risk management systems in their organizations.

STRATEGIC ASPECTS OF RISK RESISTANCE MANAGEMENT OF A RETAIL ENTERPRISE

Purpose. The aim of the article is substantiation of the methodology of strategic management of risk resistance of a retail enterprise. Methodology of research. The works of domestic and foreign scientists on strategic risk management in the enterprise are the theoretical and methodological basis of the study. The tasks set in the work were solved using the following methods: analysis and generalization - when analysing models of strategic risk management; a systematic approach, an abstract and logical one - when determining the main stages of strategic management of the risk resistance of a retail enterprise, developing a “bow tie” diagram for assessing the risks of a retail enterprise; economic and mathematical modelling - when developing a tuple of structural elements of an information system for managing the risk resistance of a retail enterprise. Findings. Scientific approaches to the formation of a strategic enterprise risk management system were studied. The key aspects of the methodology “Risk management of the organization. Integrated Model” were considered. A PPRR-model of strategic management of the risk resistance of a retail enterprise was developed. The main stages of strategic management of the risk resistance of a retail enterprise are determined. A tuple of structural elements of the information system for managing the risk resistance of a retail enterprise was formed. A methodical approach to the construction of a “bow tie” diagram for risk assessment of a retail enterprise is substantiated. This approach takes into account the relationship between the sources of risk and the consequences of its implementation. Originality. An organizational and methodological approach to the formation of a strategic management system for the risk resistance of a retail enterprise has been developed, unlike existing ones, it creates the opportunity to quickly and timely respond to changes in the external environment, identify sources of risk, establish cause-and-effect relationships between risk factors and its consequences, analyse and prove relevant information at risk for strategic decision makers. Practical value. Practical implementation of the results of the study lies in the development of applied tools that can be used to make informed strategic decisions to mitigate the consequences of the onset of risk events, increase the level of risk resistance of retail enterprises under resource and time constraints, while contributing to the achievement of the set targets for the activities of a trading enterprise. Key words: risk, risk resistance, strategic management, PPRR model, information system, assessment, “bow tie” diagram.

The Global Organizational Behavior Analysis for Financial Risk Management Utilizing Artificial Intelligence

Enterprise financial risks are analyzed utilizing the theory of organizational behavior, and a financial risk management system is constructed to improve the design and algorithm of the enterprise risk management system. Base on the CCER (China Center for Economic Research) database, the early warning model for enterprise financial risk management containing five indices is proposed for enterprises. Through Logistic regression analysis, the design principle of the financial risk management system based on AI (Artificial Intelligence) technology is explained. The proposed system innovatively introduces the AI integrated learning method, optimizes objective function through XGBoost (eXtreme Gradient Boosting) algorithm, and trains the model through BP (Backpropagation) NN (Neural Network). Finally, following comparative analysis, the effectiveness of the proposed method is verified.

An Empirical Analysis of Corporate Financial Management Risk Prediction Based on Associative Memory Neural Network.

As a human brain-like computational model that can reflect the cognitive function of the brain, the problem of dynamic analysis of associative memory neural networks has attracted the attention of scholars. This paper combines associative memory neural networks with enterprise financial management risks, studies the synchronization control and stability analysis problems of unidirectional associative memory-like human brain amnestic neural networks with perturbation and mixed time-varying time lags, proposes a bidirectional associative memory-like brain stochastic amnestic neural network model with mixed time-varying time lags, designs a discrete-time sampling control strategy based on the model, and studies various types of recent financial risks. Based on the early warning research, based on the associative memory neural network method, we propose to reconstruct the risk categories, including improving the enterprise risk management system, enhancing the awareness of financial risk management from top to bottom, and strengthening the core competitiveness of the enterprise itself and control measures for financing, investment, operation, and cash flow risks.

Methodical Approaches to the Organization of Risk Management System for the Use of Electronic Payment Systems in Modern Conditions

The aim of the study is the formation of scientific and methodological aspects of the organization of the enterprise risk management system in modern conditions. Achievement of this goal is ensured by the use of tools of economic and mathematical modeling and parametric forecasting of financial indicators, taking into account risk factors. Functioning of enterprises in the minds of enhancing volatility and insignificance is unwise without an effective system and risk management. It is grounded, that the activity of the enterprises needs to be examined, as an integral system for reaching the strategic goals in the context of the elements of this system. Methods for the formulation of scientific-methodical ambushes, the organization of risk-management at the enterprises has been refined, the management system has been broken up with the use of innovative methods and tools in management, objects, subject of the system. The structural-logical block diagram of the control of the risers was grounded in the boundaries of which the groups of risks were formed: financial, operational, and functional. It has been brought to the point that the key tools for managing the representations of groups in the form of parametric economics and mathematics models. For the value of the significance of the risk factors and the efficiency of the financial inputs of the processes in the current minds, the extrapolation forecasting tools are stuck. Based on the analysis and assessment of key risk factors in Ukrainian banks, it has been brought to the attention that it is necessary to control the indicators of efficiency and sensitivity to the change of high rates and the change in the form of management of the system and the hour of development. The interrelation of the effective indicators of the efficiency of banks and the efficiency of financial inputs in the case of variations in the risk factors has been established. It is intended that, in order to ensure the efficiency of enterprises, it is necessary to establish all the risk factors and scenarios of their behavior for the future in the minds of continuous volatility.

ORGANIZATION OF RISK-MANAGEMENT IN EQUINOR ASA

The article reveals modern approaches to enterprise risk management based on the introduction of ERM (enterprise risk management) system, aimed at the integration of all types of risks in the company's strategy and the transition from protection from negative situations to the concept of risk appetite. The special importance of risk management for oil and gas companies in the conditions of global instability and high price volatility is emphasized. The author analyzes the experience of the Norwegian oil and gas company Equinor in the development and implementation of ERM, changes in the organization of risk management and methods of analysis and evaluation.