Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Ten common misconceptions about enterprise risk management
Article Type: From: Strategic Direction, Volume 24, Issue 7.
Fraser J.R.S., Simkins B.J. Journal of Applied Corporate Finance, Autumn 2007, Vol. 19 No. 4, Start page: 75, No. of pages: 7
Purpose - To correct the ten commonest corporate mistakes in considering enterprise risk management (ERM). Design/approach/methodology - Outlines errors of thinking and of execution and presents alternatives that lead to successful reduction of the cost of creating capital through ERM. Takes each mistake in turn. Findings - Finds that ERM is only about residual risk, and is dependent on the organization’s goals. Stresses that levels of risk tolerance have to be defined. Notes that ERM is a holistic approach and credit worthiness, productivity and environmental performance are all important. Argues that ERM requires input from all corporate backgrounds and is a critical part of overall planning, albeit where some risks have a higher level of control than others. Adds that upside risk is important during planning, not during routine operations. Asserts that ERM can raise a credit rating, and has nothing to do with SOX. Practical implications Reveals that ERM is simpler and more straightforward, if more radical, than many believe. Originality/value - Demonstrates that ERM, like other strategy aids in the past. is the victim of managers that lack understanding and commitment.ISSN: 1078-1196Reference: 37AE223
Keywords: Corporate strategy, Enterprise risk management, Risk management, United States of America