globalization and increased financial sophistication

globalization and increased financial sophistication

With the acceleration of factors such as globalization and increased financial sophistication in the recent tech-based world, the number of business risks continues to multiply. The increased business risks have resulted in organizations’ effort in seeking the necessity of implementing some sorts of risk management systems. In this context, the enterprise risk management (ERM) system has proven its effectiveness in managing the organizational risks and maximizing the opportunities. Undoubtedly, all the scales of industries, private or public, have witnessed significant contribution and importance of enhanced risk management system. Enterprise risk management can be defined as a revolutionized methodology of effective management of risks across the organization with the application of a common framework of risk management (Lundqvist & Vilhelmsson, 2016). The implementation of ERM provides an organization with a broad spectrum of benefits, including the creation of an organizational culture that is more risk-oriented. An organization with effective ERM is prone to maximize focus on risk at top levels resulting in additional all levels of risk discussion. The resulted culture shift provides the ability to consider the risk more openly as well as breaking silos down concerning the criterion of managing the risk. Also, the ERM boosts the better reporting, structuring as well as standard analysis of risks. The standard reports tracing the enterprise risks can improve the focus of organizational executives and directors by offering information that can help in decisions regarding risk mitigation. Based on the articles and textbooks, I have learned an additional benefit of implementing ERM in an organization that ensures the efficient utilization of the available resources within the organization.

Thus, before the implementation of enterprise risk management, various factors need to be considered. They include understanding the buy-in from the top, engagement of CFO, inventory of risk process, and organizational framework. Primarily, the ERM is entitled to begin at the top management and the executives, including the senior management team that is dedicated to implementing a formal methodology of managing the risks. The management team should also be in a position to understand and communicate the importance and implementation of the ERM in the organization at all levels (Malhotra, 2015). The engagement of the financial leaders has significant contribution and should be considered before the implementation. The leaders play a substantial position in understanding how an approach of risk management will help in identifying and mitigating the issues that are prone to taking the organization off track. Performing risk process inventory is another significant factor of emphasizing before implementation, which helps in understanding what should be added as far as the engagement of whole activities of risk management is concerned. Also, it is essential to consider the organizational framework before the ERM implementation. This helps in researching and adopting a better risk management framework that suitably fits the organization.

Overall, the time horizon of ERM modification after implementation largely depends on the intention of the organization on using the ERM system and the willingness to investing in risking management. Several companies have been modifying the ERM system for quarterly or year-end time horizon. Alternatively, the complex and sophisticated companies have been integrating results of ERM into longer-term and annual budgeting processes of strategic planning (Malhotra, 2015). Overall, the short-term period of modification, which is less than a year, is considered since it needs less training of the user, providing increased accuracy in risk estimation, and it is cheapest compared to longer-term options. However, some companies are opting for the longer-term solution of ERM modification in mitigating annual limitations of assessment, which includes risk visibility and mitigating time.

Several case studies have been reviewed on enterprise risk management. I chose the “Kilgore Custom Milling” case study as my best of all. The rationale behind selecting this case as my favorite is because is it contains a general overview and a broad range of issues, including potential threats and opportunities as far as ERM implementation is concerned (Yilmaz, 2009). The case study is pointing out that many dangers can be debated after they are explored as a section of the existing approach to ERM, including the use of SWOT analysis as well as risk profiles. Overall, I found it significant because it is focusing on financial risk management, bearing in mind that due to globalization, the financial risks have become more sophisticated. However, I consider the “Nerds Galore” case study as my least favorite because it is not focused on addressing the issues such as opportunities created by ERM as well as the dangers accompanied to the system implementation.

I am planning to secure a career that involves ERM, for instance, a Chief Risk Officer in a given organization. Therefore, as an organizational chief risk office, my ideal job role will be depending on the organization size and, generally, I have a role in managing unexpected dangers and disasters. The risk management operation will include overseeing the organization’s threats identification as well as activities to mitigate the risks.

References

Lundqvist, S., & Vilhelmsson, A. (2016). Enterprise Risk Management and Default Risk: Evidence from the Banking Industry. Journal Of Risk And Insurance, 85(1), 127-157. doi: 10.1111/jori.12151

Malhotra, Y. (2015). Toward Integrated Enterprise Risk Management, Model Risk Management & Cyber-Finance Risk Management: Bridging Networks, Systems, and Controls Frameworks. SSRN Electronic Journal. doi: 10.2139/ssrn.2792629

Yilmaz, A. (2009). Importance of the Enterprise Risk Management Practice for Airline Management: ANP-based Approach. International Journal Of Business And Management, 3(5). doi: 10.5539/ijbm.v3n5p138