• Over a decade ago, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued the document Internal Control – Integrated Framework to help businesses and other entities assess and enhance their internal control systems. That framework has since been used by thousands of enterprises to better control their activities while aiming toward their established objectives. Over recent years, there has been a heightened concern and focus on risk management, and it has become increasingly clear that there is the need for a robust framework to effectively identify, assess, and manage risk: Enterprise Risk Management – Integrated Framework.

  The underlying premise of enterprise risk management is that every entity exists to provide value for its stakeholders. All entities face uncertainties and the challenge for the management area is to determine how much uncertainty to accept as it strives to increase stakeholder value.

  Over a decade ago, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued the document Internal Control – Integrated Framework to help businesses and other entities assess and enhance their internal control systems. That framework has since been used by thousands of enterprises to better control their activities while aiming toward their established objectives. Over recent years, there has been a heightened concern and focus on risk management, and it has become increasingly clear that there is the need for a robust framework to effectively identify, assess, and manage risk: Enterprise Risk Management – Integrated Framework.

  The underlying premise of enterprise risk management is that every entity exists to provide value for its stakeholders. All entities face uncertainties and the challenge for the management area is to determine how much uncertainty to accept as it strives to increase stakeholder value.

  Enterprise risk management consists of eight interrelated components. These are derived from the way the management runs an enterprise and are integrated with the management process. These components are:

  • Internal Environment
  • Objective Setting
  • Event Identification
  • Risk Assessment
  • Risk Response
  • Control Activities
  • Information and Communication
  • Monitoring

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Benefits

Value is maximized when the management establishes a strategy and objectives to strike an optimal balance between growth and return goals and related risks. Enterprise risk management encompasses the following points:

• Aligning risk appetite and strategy
• Enhancing risk response decisions
• Reducing operational surprises and losses
• Identifying and managing multiple and cross-enterprise risks
• Seizing opportunities
• Improving capital deployment

These capabilities inherent to enterprise risk management help the management achieve the entity’s optimal performance and profitability targets and prevent resource loss.

 

The Challenge

The main challenges associated with the COSO Standard are directly related to ERM program implementation. Common topics and challenges include:

• Identifying executive sponsors for ERM
• Establishing a common risk language or glossary
• Describing the entity's risk appetite (i.e., risks it will and will not take)
• Identifying and describing the risks in a "risk inventory"
• Implementing a risk-ranking methodology to prioritize risks within and across functions
• Establishing a risk committee and/or Chief Risk Officer (CRO) to coordinate certain activities of the risk functions
• Establishing ownership for particular risks and responses
• Demonstrating the cost-benefit of the risk management effort
• Developing action plans to ensure that risks are appropriately managed
• Developing consolidated reporting for various stakeholders
• Monitoring the results of actions taken to mitigate risks
• Ensuring efficient risk coverage by internal auditors, consulting teams and other evaluating entities

The SoftExpert Excellence Suite offers tools for the complete management of the organization’s risks in compliance with the COSO International Standard. All of this in a collaborative and integrated environment that guarantees the standardization and correct use of information to obtain excellence in risk management.