With increased scrutiny being given to risk management accelerated in the aftermath of the near financial system meltdown, COSO has released a new thought paper to support companies’ efforts to enhance their risk management processes. Titled Strengthening Enterprise Risk Management for Strategic Advantage, the paper is geared to senior executives and boards of directors, highlighting key elements of ERM. This paper is a follow up to COSO’s Effective Enterprise Risk Oversight: The Role of the Board of Directors, reported by John Kelly in his September 1 blog entry.
This newest paper is intended to provide a “basis for introspection about current approaches to risk management and be a catalyst for management to strengthen risk management for the purpose of enhancing the board’s risk oversight capabilities and the organization’s strategic value.” As such, COSO encourages boards and management to turn to COSO’s Enterprise Risk Management— Integrated Framework for in-depth discussion of core components of enterprise risk management.
The paper sets the stage by focusing on how the financial crisis and business complexity, advances in technology, globalization, speed of product cycles, and the overall increased pace of change increases risks facing organizations. It points to a perception that senior executives and boards “could be more aware of the risks they are taking” and do more to prepare for their downside. It also points to legislative and regulatory initiatives providing further impetus for focusing on risk management.
The paper centers on four areas where senior management can work with its board to enhance the board’s risk oversight capabilities:
- Discuss risk management philosophy and risk appetite
- Understand risk management practices
- Review portfolio risks in relation to risk appetite
- Be apprised of the most significant risks and related responses
The paper does a good job highlighting how these activities can be effectively operationalized, and contains points of focus particularly for directors. It’s especially useful for senior executives and board members struggling to cope with their management and oversight responsibilities. It may even be worth the read for professionals with some knowledge of the COSO ERM Framework, to refresh memories and sharpen a focus on what ERM is all about. Probably most of all, the paper should provide useful support to those who are working to make the case for ERM in their organizations.
Strengthening Enterprise Risk Management for Strategic Advantage is available at www.coso.org.