Enterprise-wide Risk Management Research Articles

Exploring Enterprise-Wide Risk Management System in Higher Education

Abstract The purpose of this case study research paper is to provide unique and in-depth data and understanding of Enterprise-Wide Risk Management within the real-world context of a private HEI. The research presented adoption of risk management practices within a UK higher education (HE) setting that demonstrates the evolution of processes towards enterprise-wide educational governance in support of a sustainable HE sector. Effectively managing enterprise wide risk ensures sustainability is on the governance agenda. Within this research paper a wide spectrum of risk management practices and theories is assessed and a case study review shows a mature adoption, over time, of a holistic approach to managing risk. This research paper therefore, provides valuable lessons learned and gives practical guidance for policy makers, governors and senior management in Higher Education Institutions (HEIs). The case study organisation provides a best practice view of enterprise-wide risk management system taking guidance from global standards, national regulatory bodies, universities, colleges and experts in risk management from all levels. The main gap in current published knowledge presented is that the drivers for successfully implementing sustainable risk management in the HE sector are not known. The research questions have led the inquiry to provide three contributions to a better understanding of adopting Enterprise-Wide Risk Management in HE with a new roadmap for implementation; thematic direction for governance; and six drivers for successfully implementing sustainable risk strategies.

The Management of Corporate Risk Factors: The Business Risk-management and L’enterprise-wide Risk Management

The management of risk factors requires three key elements: a common terminology for risk, in a continuous and future-oriented process of identification, research and measurement of risks and opportunities, and finally managers skilled in risk management and responsible for coordinating and continuously implement the risk strategy with pre-established risk objectives. These elements are applied consistently within the company. The work will focus on the current view of corporate risk and risk management. Finally we will focus on enterprise-wide risk management.

Measuring corporate management in business maturity forecasting models

Modern corporate theory interprets enterprise-wide risk management (ERM) as an agent between stakeholders and corporate governance. In accordance with the latest ERM framework, corporate risk management in business includes the methods and processes used by organizations to manage uncertainty and use the opportunities associated with achieving their goals. The aim of the study is to measure corporate management in business maturity forecasting models. The author predicted a company cluster based on signal to noise ratio. As the basic model, the author used the calculation method proposed by G. Taguchi to assess product quality as well as for the design and optimization of processes. The research method used for the study was empirical. The author obtained financial performance data relating to all 218 companies from the SPARK database. It was applied two-step cluster analysis to compare companies within the sample. Also, it was calculated the geometric mean for each quantitative variable to avoid the influence of temporary shocks and distortions. The results of a nonparametric test showed that the relationship between the signal-to-noise ratio (SNR) and ERM is significant. Thus, based on the results of the theoretical and empirical studies, we can argue that the measurement of ERM through the SNR is justified.

Enterprise-Wide Risk Management and Risk Governance of Microfinance Banks in Nigeria

Purpose: Proactive risk management is indispensable to the long-term growth and sustainability of a business, however the practice of enterprise-wide risk management (EWRM) among microfinance banks is limited by its knowledge. Hence, the motivation of this study to examine the effect of current practices of EWRM on risk governance in MFBs in Nigeria. Design/Methodology: The study adopted survey research design to define the structure and strategy of the study. Targeting microfinance banks in the north east region of Nigeria, 222 MFBs were selected as at 31 st December, 2020. The required data were collected from respondents using structured questionnaire and financial statement of the banks. The data collected were analyzed using both descriptive and inferential statistics. Findings: The analyses of the study revealed that board of directors’ oversight, human resources competence, internal audit effectiveness, and top management commitment have positive and significant effect on risk management effectiveness of the microfinance banks in Nigeria. Furthermore, regular risk compliance was found to have positively moderates the relationship between human resource competence and risk management effectiveness, and the relationship between top management commitment and risk management effectiveness. However, the results indicates that regular risk management negatively moderates the relationship between internal audit effectiveness and risk management effectiveness and the relationship between board of directors’ oversight and risk management effectiveness. Implications: The current enterprise-wide risk management practices among MFBs in the North East Nigeria has a positive and significant effect on risk governance of the banks, which invariably enhance the performance of the banks. Furthermore, the internal control mechanism instituted by the regularity authority and the Board of Directors has enhance EWRM practices and MFBs performance. Hence, the study recommended the effective implementation of CBN Risk Management Framework for Microfinance Institutions to assist the MFIs identify their risk exposures with a view of monitoring and controlling them.

Evaluation of Risk Management Maturity in the Czech Automotive Industry: Model and Methodology

This article provides a review of currently used risk maturity models to provide an overview of the assessment and diagnostics of risk management maturity in companies. The main research goal is to develop an entry-level easy-to-use diagnostic tool for enterprise-wide risk management maturity assessment tailored to Tier I suppliers of the automotive industry. In the first step, the questionnaire for self-evaluation was prepared with the help of a panel of experts using a synthesis of existing models suitable for use in the automotive industry. The risk maturity assessment model is then prepared using the Delphi method and the Likert scale for multi-criteria evaluation since the experts insisted on setting different weights for each criterion. Based on the results presented in the paper, a risk maturity self-evaluation tool in the form of a questionnaire was created for companies. Findings: The initial purpose of the research was to provide a review of the currently used risk maturity models, which led us to find more than 77 maturity models. The origin of risk maturity models can be credited to Hillson (1997) who built the first risk maturity model based on the capability maturity model from the IT sector. A significant research effort was put into the observation of hard and soft benefits of risk management. Based on the analysis of carefully chosen models, the new model was synthesized. The proposed model uses a selfevaluating easy-to-use questionnaire. The questionnaire consists of 24 attributes divided into 5 modules that were evaluated based on the 25 questions. All attributes were assessed on a 10-point Likert scale using the Delphi method conducted with the panel of experts. The outcome and purpose of the model is an entry-level diagnostics questionnaire of company risk management maturity tailored for Tier I suppliers of the automotive industry. Originality/value: As risk management is complex, maturity models provide companies with the ability to assess their situation and set strategic goals in the field of risk management. Tailoring a risk maturity model for the needs of the specific organization or industry sector has been recommended by researchers and industry practitioners in risk management (Antonucci, 2016; Kaplan and Mikes, 2016; Marks, 2015; MARSH, 2018; McKay, 2017).

Resolution of the Internal Audit-Based Role Conflicts in Risk Management: Evidence from Signaling Game Analysis

This study analyzes the inherent role conflicts of internal audit in risk management and clarifies the conditions for the resolution of them using a signaling game model. In the model, we determined five perfect Bayesian Nash equilibriums. The analysis emphasizes the compatibility between the assurance or consulting roles of internal audit and service demand of management. Two equilibriums come to the fore in this respect, and both of them set a game-theoretic ground for the theoretical arguments. Firstly in the face of uncertainty about the risk maturity level of the organization, internal auditors should prefer assurance service in enterprise-wide risk management. The analysis of the equilibriums supports the idea that the assurance role being the core task of internal audit continues to be the key component of the audit profession. Secondly, in “risk-mature” organizations, it is possible to create more value by focusing on the assurance role, whereas for the early stages of risk management, focusing on the consulting role enables one to add more value. The predictions of equilibrium results are in line with this theoretical argument. Furthermore, the equilibrium results imply that the compatibility predicted by the equilibriums features the necessity of proper dialogue mechanisms and especially an effective negotiation process between the internal audit and management. The dialogue and negotiation competency of the relevant parties will enable them to find mutually optimal strategies in accordance with the risk maturity level and ultimately to contribute to the resolution of inherent role conflicts.

Internal Audit's Involvement in Enterprise-Wide Risk Management

Drawing on data from a survey of 95 Australian Chief Audit Executives (CAEs) across a range of sectors, industries and size of organisations this report examines: (i) the IAF’s involvement in assurance, consulting and management roles in ERM in Australia as well as expectations of how involvement in these roles might develop in future; and (ii) perceptions of the current effectiveness of the IAF’s involvement in ERM. The findings indicate diversity of practices including evidence of IAFs engaging in ERM-related management-type roles potentially leading to impairment of their independence and objectivity. Overall, effectiveness of IAFs’ ERM-related roles was generally perceived to be limited.

Operational Excellence and the Implications for Health, Safety and Environmental Performance in the Oil and Gas Industry

The rise in the cost of production, health, safety and environmental issues are some of the daring challenges faced by the oil sector in recent time. This article is aimed at reviewing literature (reports, articles and theses) and antecedents of research in operational excellence and related field in order to understand the actual problems and their root causes. The performance of the Nigerian National Petroleum Corporation (NNPC)’s refineries, health and safety, the environment and revenue generation was also discussed. The findings indicated that although operational excellence was adopted, the health, safety and environmental (HSE) performance has been falling down, as incidents and fatalities issues are rising. Oil spillage and gas flaring are no way near stopping, outdated regulations, increasing unplanned plant shutdown, refineries performing below capacity and production deferments. The paper thus concludes that the Nigerian oil sector, particularly the NNPC should imbibe risk management culture and training, deploy dynamic technologies, employ enterprise-wide risk management strategy and upgrade the entire regulatory framework governing oil and gas activities.

Building Up a Protective Shield: The Role of Tax Communication for Corporate Tax Risk Management

Our objective is to examine the ‘black box’ of corporate tax risk management by providing unique insights into practitioners’ tax risk perception, implemented tax risk management practices, and the internal dynamics leading to these practices. We perform our analysis based on 33 expert interviews, which we conducted with 42 practitioners. One important insight from our interviews is that substantial heterogeneity in tax risk definitions exists among corporate insiders and corporate outsiders. Another important finding is that our sample firms engage in detached tax risk management practices that are not integrated into enterprise-wide risk management efforts. We attribute this separation to the unique risk profile of the corporate tax function. Our results further reveal that 90% of our sample firms engage in (preventive) external tax communication to manage their tax risks. Through addressee-specific tax communication, targeted at different external stakeholders, tax departments shield their firm and its CFO from impinging external pressure and thus reduce corporate tax risk exposure.

The drivers and value of enterprise risk management: evidence from ERM ratings

ABSTRACTIn the course of recent regulatory developments, holistic enterprise-wide risk management (ERM) frameworks have become increasingly relevant for insurance companies. The aim of this paper is to contribute to the literature by analyzing determinants (firm characteristics) as well as the impact of ERM on the shareholder value of European insurers using the Standard & Poor’s ERM rating to identify ERM activities. This has not been done so far, even though it is of high relevance against the background of the introduction of Solvency II, which requires a holistic approach to risk management. Results show a significant positive impact of ERM on firm value for the case of European insurers. In particular, we find that insurers with a high quality risk management (RM) system exhibit a Tobin’s Q that on average is about 6.5% higher than for insurers with less high quality RM after controlling for covariates and endogeneity bias.

Strategic Options to Cultural Risk Management: A Theoretical Framework

This paper outlines a view of cultural issues, connecting it to the risk literature. Culture, as a risk-driver of the firm, has not previously been fully explored. International business scholars tend to ignore either the external or the internal aspects of a firm's cultural environment, emphasizing only one side: either cultural diversity issues within the organization or host country cultural challenges. Using strategic management, this paper suggests that cultural risk should consider both out there according to product-market-positioning concepts and in here with the resource-based view of the firm to capture the essence of the firm's cultural dynamics. This paper proposes a theoretical framework to assess cultural risks under an enterprise-wide risk management (ERM) process to better manage such risks. The suggested framework can serve as a tool to benefit researchers as well as practitioners.

Управление экологическими рисками в организациях финансового сектора стран Группы двадцати

The article is focused on determination of key development directions of environmental risk management in G20 countries, based on the analysis of its current state. They are: 1) application of new classification of risk factors in environmental risk management; 2) application of new, more precise and efficient instruments and methods of environmental risks’ identification and analysis; 3) formation of publicly available environmental database; 4) integration of instruments, methods, procedures and results of evaluation of environmental risks into enterprise-wide risk management system of financial organization. It was noted in the article that financial institutions also started applying the newest methods and instruments of risk management (such as scenario analysis, stress testing, probability modeling, systems analysis, etc.). The authors claim that one of the keys to financial institutions’ success is an ability to integrate procedures, methods and instruments of environmental risk identification and evaluation results into enterprise-wide risk management system (ERM). The article also conducts a case study of application of the newest methods and instruments of environmental risk management by financial institutions in various G20 countries. The authors draw a conclusion that G20 countries, which are planning a transition to sustainable development, need to increase their efforts in order to put in place environmental risk management systems.

The relationship between enterprise risk management, value and firm characteristics based on the literature

In the wake of the increasing importance of comprehensive enterprise-wide risk management approaches (ERM) in the last years, e. g. due to stronger regulatory requirements, the field of research on ERM has attracted a considerable amount of attention in the literature. The aim of this paper is to provide a literature-based analysis of the theoretical arguments and empirical findings regarding firm characteristics in the context of measuring the impact of ERM on firm value. Due to the endogeneity problem, we focus on the direct impact as well as on the indirect impact (via ERM) of firm characteristics on firm value.

A Very Special Regulatory Milestone

Expenditures underwriting corporate compliance in the United States are approaching a very special regulatory milestone. Compliance costs are nearing municipal policing costs. The trajectory of compliance expenditures over the past several decades may be traced to a good corporate citizenship movement in the mid-1990s where the government proposed a public-private sector partnership to combat corporate crime. In this Essay, it is argued that this “partnership” was never really about a fair sharing the enforcement responsibilities. The government hoped to overcome the near insurmountable challenge of getting evidence of corporate wrongdoing, while shifting as much of the burden and costs of policing to the regulated. Companies continue to justify making compliance expenditures in reasonably defensive ways to levels that are now unprecedented. The Essay highlights that those who rail against over-criminalization or corporate criminal liability, more generally, miss speaking out against a one-sided regulatory strategy of compliance cost shifting that brings us to this historic milestone. Moreover, the threat of unfair and burdensome costs was never with the very rare event of corporate criminal liability. Rather, the threat came from firms taking the government’s bait that they needed to spend, and spend, and spend more. This boundless spending, it is concluded, may be seen as imposition of a preemptive penalty on firms. This is a way for regulators to ensure that firms pay a fair share for their wrongdoing for the “dark figure” of corporate culpability. In this Essay, some of the most significant questions about the private and public administration of justice are asked on the precipice of a gradual retreat from this very special regulatory milestone. This retreat will come from efficiencies brought about by the digitalization of compliance and a convergence in compliance technology, evaluation science, international standards, and investments in sophisticated enterprise-wide risk management systems. The resulting reduction in compliance expenditures will bring about a corresponding decline in preemptive penalties. The hope is that this will motivate government functionaries to join firms as an active partner in forging new and innovative paths to regulation.

Portfolio diversification in the sovereign credit swap markets

We develop models for portfolio diversification in the sovereign credit default swaps (CDS) markets and show that, despite literature findings that sovereign CDS spreads are affected by global factors, there is sufficient idiosyncratic risk to be diversified. However, we identify regime switching in the times series of CDS spreads and spread returns, and the optimal diversified strategies can be regime dependent. The developed models trade off the CVaR risk measure against expected return, consistently with the statistical properties of spreads. We consider three investment strategies suited for different CDS market participants: for investors with long positions, speculators that hold uncovered long and short positions, and hedgers with covered long and short exposures. We use the models to illustrate that diversification pays in the CDS market. The models are also tested for active portfolio management in Eurozone core and periphery, and Central, Eastern and South-Eastern Europe countries, and the optimized portfolio results outperform the broad S&P/ISDA Eurozone Developed Nation Sovereign CDS index. The paper concludes by identifying open questions in developing integrated enterprise-wide risk management models using CDS.

Does Enterprise risk management enhance operating performance?

The Committee of Sponsoring Organizations (COSO) Enterprise Risk Management (ERM) framework (COSO-ERM) indicates that the development of an enterprise-wide risk assessment and management process is designed to “provide reasonable assurance regarding the achievement of entity objectives.” We examine this issue and hypothesize that firms with mature ERM processes should achieve greater operational performance than those with less mature risk management processes. This study relies on internal audit function management survey responses matched with archival firm level data to gain a better understanding of the expected operating performance impact of the multi-stage ERM implementation process. After controlling for board governance and other known effects, we find that firms with higher levels of ERM process maturity are characterized by higher operating performance than their industry peers utilizing performance metrics closely related to the earnings process. Our study provides support for the linkage of enhanced operating performance associated with the maturity of ERM processes and suggests other potential areas of ERM research.

Multivariate TVaR-Based Risk Decomposition for Vector-Valued Portfolios

In order to protect stakeholders of insurance companies and financial institutions against adverse outcomes of risky businesses, regulators and senior management use capital allocation techniques. For enterprise-wide risk management, it has become important to calculate the contribution of each risk within a portfolio. For that purpose, bivariate lower and upper orthant tail value-at-risk can be used for capital allocation. In this paper, we present multivariate value-at-risk and tail-value-at-risk for d ≥ 2 , and we focus on three different methods to calculate optimal values for the contribution of each risk within the sums of random vectors to the overall portfolio, which could particularly apply to insurance and financial portfolios.

THE ANALYSIS AND ESTIMATION OF ECONOMIC EFFICIENCY OF RISK MANAGEMENT

Enterprise-wide risk management is a relatively new scientific and practical area of a corporate government, which has a special mission to deal with corporate risks and exposures and to achieve beneficial risk management outcomes. Risk management has a wide range of methods, techniques and tools, but quite expensive, but in the case of a successful application, can stimulate an increase in the company's value. Nevertheless, despite its relevance, risk management reluctantly introduced to the company, this is due, primarily, to the inability to pre-determine the economic impact of existing activities. Most methods for assessing the cost-effectiveness of risk management, as a rule, designed to assess the economic impact after the fact, in this article, the author has provided the tools for assessing the financial and economic impact of the implementation of risk management in advance.

Risk and/or resilience management

Risk management aims at managing all the uncertainties that may interfere with the objectives and missions of the organization. Resilience engineering aims at building its capacity to get over disturbances or stress while keeping the functionalities needed to survive, and possibly thrive. A recently open debate on an Internet blog launched by the risk managers of the Scottish Widows Bank seems to arise from what some professionals see as two competing branches of the management sciences. Whereas through the development of ERM – Enterprise-wide Risk Management – risk management is emerging at last to become a science, as well as an art and a practice, the mentioned above centered on the role of a newly forged name “resilience management”. This opens a new front of the many debates that could derail the path to maturity of Risk Management as a science and reopen new silos much as Business Impact Analysis, BIA, or continuity management, might do if a clear distinction is not made between science, objectives and tools. However, because organizations are so interconnected today in the supply cloud that it is inevitable that they will face catastrophic risk and this is why resilience needs to be a core objective of any risk management plan? Whereas traditional risk management techniques alone may not be adequate to deal with such pervasive and insipient risk scenarios, resilience is ingrained into ERM.

Enterprise-wide risk management and organizational fit: a comparative study

Purpose – The purpose of this paper is to analyse enterprise risk management (ERM), its organizational translation and fit, investigating in particular its impact on a major control process: budgeting. Design/methodology/approach – The research was carried out with a multiple case study approach including three companies in the UK. This approach was chosen to gain a deeper understanding of the nature of ERM within each of the organizations and the factors shaping its achievements. Findings – Three main issues emerged. The first is related specifically to ERM implementations and its variety in practice. Second, ERM champions emerged as central in shaping the managerial usefulness of ERM. Third, the cases showed diversity of practice in term of integration with budgeting which range from a voluntary full integration to an voluntary separation. Practical implications – The cases analysed highlighted that the integration between risk and other control processes is a challenge but also a strategic choice. Although conceding that ERM implementation is not linear, companies should reflect upon the type of relations they would like to have between different processes of control. Originality/value – The results of the paper explored ERM organizational fit, evidencing variety in practice and theoretically discussing how this diversity is linked to organizational and technical issues.