Enterprise Risk Management

Enterprise Risk Management : An empirical analysis of factors associated with the extent of implementation. By Mark S. Beasley, Richard Clune, Dana R. Hermanson.

Introduction.

For our better understanding of Enterprise Risk Management we need to write and answer questions for this assignment on Enterprise Risk Management : “ An empirical analysis on factors associated with the extent of implementation”. Summary.

Entity stakeholders these days demand greater oversight of key risks facing the enterprise to ensure that stakeholders value are preserved and enhanced. Policy makers keep trying to improve corporate governance and risk management to oversee the portfolio of risks facing an enterprise.  As a response to these growing expectation, many organizations are considering to embrace this new paradigm known as Enterprise Risk Management.

A succesful implementation of ERM can help the company realize unforeseen risks and provide them with effective strategies to manage these risks. This is important as good ERM initiatives could combat the volume and complexities of the risks faced by today’s organization and so enhance and preserve stakeholders value.

Despite of the recent changes in corporate governance rules which includes explicit requirement for specific responsibilities regarding risk assessment and risk management, not all organization are adopting Enterprise Risk Management.

This research assignment discusses factors associated with an entity’s stage of ERM adoption and to why some organizations are adopting ERM and some not.

Determinants of ERM adoption shows what are the factors that complies an orgaization to adopt ERM processes :

 Company with higher leverage are most likely to adopt ERM  Presence of a CRO (Chief Risk Officer)   An Independent Board of Directors  Strong support of senior managers (CFO, CEO)  Presence of a Big Four Auditor  The deployment of ERM by large Organizations   ERM deployments by banking, education and insurance entities  Adoption of ERM by Non-US enterprises

Assignment questions :

1) Why does the low response to the survey, related to the 5 stage model Beasley at all use, causes a potential serious problem regarding the reliability of their findings?

There were 1770 GAIN members ( Global Audit Information Network) who participated in a survey related to ERM deployments and other organizational characteristics which provided COSO definition and elements of ERM.  Out of that survey process only 175 members responded, which is a rate of 10.3% which is considered lower than the other surveys of internal auditors. Low response rate of a survey can affect statistical result and therefore can not be regarded as reliable.

Reasons for low response are :  Survey data were obtained from a group of Chief Audit Executives who had limited knowledge about general ERM deployments.  The level of sufficiency of the research sample and pre-test sample was not adequate enough, questioning the reliability of the result.  Having just a sole group of executives in the sample survey process can produce results that are based on bias opninions.

Other reasons could be :  Uncompleted questionnaires.  Limited or not accurate knowledge about ERM deployments by executives.  The response rate to the survey instruments wasn’t high enough compared to other survey-based research.  Due to limited data among the independent variables of the model.

2) What could be the tasks of a CRO in relation to enterprise risk management as, for example, in the COSO model?

Definition of Chief Risk Officer (CRO) : Chief Risk Officer is responsible for identifying, analyzing and mitigating internal and external events that could threaten a company. He ensures that the company is compliant with government regulations, such as Sarbanes Oxley act (SOX) and reviews the factors that could negatively affect investments or a company’s business unit.

3) Why does the low response to the survey, related to the 5 stage model Beasley at all use, causes a potential serious problem regarding the reliability of their findings?

There were 1770 GAIN members ( Global Audit Information Network) who participated in a survey related to ERM deployments and other organizational characteristics which provided COSO definition and elements of ERM.  Out of that survey process only 175 members responded, which is a rate of 10.3% which is considered lower than the other surveys of internal auditors.

Low response rate of a survey can affect statistical result and therefore can not be regarded as reliable.

Reasons for low response are :  Survey data were obtained from a group of Chief Audit Executives who had limited knowledge about general ERM deployments.  The level of sufficiency of the research sample and pre-test sample was not adequate enough, questioning the reliability of the result.  Having just a sole group of executives in the sample survey process can produce results that are based on bias opninions.

Other reasons could be :  Uncompleted questionnaires.  Limited or not accurate knowledge about ERM deployments by executives.  The response rate to the survey instruments wasn’t high enough compared to other survey-based research.  Due to limited data among the independent variables of the model.

4) What could be the tasks of a CRO in relation to enterprise risk management as, for example, in the COSO model?

Definition of Chief Risk Officer (CRO) : Chief Risk Officer is responsible for identifying, analyzing and mitigating internal and external events that could threaten a company. He ensures that the company is compliant with government regulations, such as Sarbanes Oxley act (SOX) and reviews the factors that could negatively affect investments or a company’s business unit.