Enterprise Risk Management
Enterprise Risk Management
Enterprise Risk Management in Banks
The idea for risk management in banks has been increasing and has a growing need because there are multiple necessities that the banks must comply with and each company has their own method to handling it. Risk management has been around since the 1800’s because of the fact that there was always some awareness that risk is a plausible event in the daily aspect of banking. While risk management is different from enterprise risk management, they both deal with the same thing, they just approach it differently. Enterprise risk management, according to the Risk Management Association, RMA, is “an organization’s enterprise risk competence-the ability to understand, control, and articulate the nature and level of risks taken and activities engaged in” (RMA, 2012) which contributes to increased confidence shown by shareholders,” and risk management is defined as “the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making” (Lark & Walker, 2008). So, in comparison, enterprise risk management protects and creates value for shareholders, while risk management is the process that protects an organization’s growth in the long run. There are multiple components associated with enterprise risk management such as identifying, analyzing, responding to, and monitoring risk and opportunities which is used for internal and external affairs. Even though these areas are in effect, banks have grown and changed and need new standards to abide by. In 1985, the creation of The Committee of Sponsoring Organizations of the Treadway Commission was formed in a joint initiative of the five private sector organizations and is “dedicated to providing thought leadership through the development of frame works and guidance on enterprise risk management, internal control and fraud deterrence” (COSO). COSO periodically updates its internal and
Enterprise Risk Management in Banks
The idea for risk management in banks has been increasing and has a growing need because there are multiple necessities that the banks must comply with and each company has their own method to handling it. Risk management has been around since the 1800’s because of the fact that there was always some awareness that risk is a plausible event in the daily aspect of banking. While risk management is different from enterprise risk management, they both deal with the same thing, they just approach it differently. Enterprise risk management, according to the Risk Management Association, RMA, is “an organization’s enterprise risk competence-the ability to understand, control, and articulate the nature and level of risks taken and activities engaged in” (RMA, 2012) which contributes to increased confidence shown by shareholders,” and risk management is defined as “the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making” (Lark & Walker, 2008). So, in comparison, enterprise risk management protects and creates value for shareholders, while risk management is the process that protects an organization’s growth in the long run. There are multiple components associated with enterprise risk management such as identifying, analyzing, responding to, and monitoring risk and opportunities which is used for internal and external affairs. Even though these areas are in effect, banks have grown and changed and need new standards to abide by. In 1985, the creation of The Committee of Sponsoring Organizations of the Treadway Commission was formed in a joint initiative of the five private sector organizations and is “dedicated to providing thought leadership through the development of frame works and guidance on enterprise risk management, internal control and fraud deterrence” (COSO). COSO periodically updates its internal and
References: Chitakornkijsil, P. (2010). Risk and uncertainty of enterprise during dynamic environmental changes Lark, K., & Walker, P. L. (2008). Risk Management vs. Enterprise Risk Management Protiviti. (2006). Guide to enterprise risk management. Retrieved from http://www.ucop.edu/riskmgt/erm/document/protiviti_faqguide.pdf RMA (2012). Enterprise Risk Management . [ONLINE] Available at: http://www.rmahq.org/risk-management/enterprise-risk Steinberg, R. M., & Everson, M. E. A. (2004). Enterprise risk management- integrated framework what to do about it. [ONLINE] Available at: http://www.bankdirector.com/board-issues/risk/enterprise-risk-management-what-it-is-and-what-to-do-about-it.com. [Last Accessed October 2, 2012]. Vaidyula, S. A., Kavala, J. (2011). Enterprise Risk Management for Banks. Wipro Council for Industry Research.