Reducing Risk and what Boards and Audit Committees should know
Enterprise Risk Management (ERM) - Manage risk by leveraging and integrating risk management activities
Strategic Dimension of
Enterprise Risk Management (ERM) for Audit Committees
Organizational structure and Strategic relationships
Business processes improvement and Information systems
Audit committees:
Stay focused on objectives of Enterprise Risk Management
Develop risk awareness (financial risk, operational risk, compliance risk)
Understand your company's risk assessment approach
Deploy risk management responsibility into staff roles
Establish metrics to monitor risk management effectiveness
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Reducing Risk - "How to Eat an Elephant:
What Boards and Audit Committees should know..."
The concept of Enterprise Risk Management ("ERM") is becoming a common topic with boards and audit committees. Many companies are actively deploying a more complete approach to managing risk under one large umbrella. ERM is based on the recognition that risk is pervasive, and the companies can more effectively and efficiently manage risk by leveraging and integrating risk management activities, and by deploying responsibilities and accountabilities throughout the organization. Moreover, it is becoming a recognized axiom that there exists a direct correlation between effective business process and financial management techniques, and effective risk management (i.e., ineffective business processes yield high risks.)
Audit committees should be able to generate real value for their companies by:
- Staying focused on the fundamental objectives and purpose associated with ERM
- Recognizing that ERM is a journey not a destination;
- chances are your company is already practicing many aspects of ERM,
- ERM can deployed over time without substantial investments
- ERM investments should provide a healthy return in the form of risks events avoided and improvement of efficiencies and effectiveness of business processes.
- Develop risk awareness and consciousness at the audit committee. Understanding in your industry and how your business creates risk. (Financial, operational, compliance, reputation, etc.)
- Understanding whether your company has an approach to continuously assess and mitigate risks.
- Provide leadership to raise awareness of risk management and relate to advancement of the company's mission and objectives.
- Deploy responsibility and accountability into line and staff roles, for risk management including:
- Continuous risk assessment (tied to change control)
- Continuous Monitoring
- Continuous improvement of controls
- Establish metrics to monitor risk management effectiveness and follow through regularly to reinforce accountability and reinforce success.
The above are examples of practical tactics the audit committee can take immediately. Certainly, there are also strategic dimension of ERM that the audit committee needs to eventually address. These include organizational structure, strategic relationships and business partnerships, and the company's underlying business processes and information systems.
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