Financial Scandals Of Enron, Worldcom, And Tyco Occurred Risk Management

Enterprise Risk Management (ERM) is a series of processes used to identify risk, implement strategies to address risk, and monitor impact on the organization. Indeed, an effective ERM will consist of a corporate profile, which is a record of key risks that would hinder the organization in achieving their key objectives (Fraser & Simkins, 2010). Ideally, the risk profile is created as a tool to communicate with the Board of Directors, but may be used as a means of communication with all levels of management (Bethel, 2016). Typically, there are variations of the risk profile based upon the level of management, such as duration, types of risk, and purpose (Fraser & Simkins, 2010).

As time has shown, financial institutions undertake an abundance of uncertainty causing unpredictable risk consequences. As a result, executives instill risk management programs to assist in managing the organizations risks so they align with the company’s goals. Commonly sought goals include legal and regulatory compliance, tolerable uncertainty, survival, business continuity, earnings stability, profitability and growth, social responsibility and economy of risk management operations. Through the implementations of goal oriented programs, an organization can effectively minimize risk uncertainty. All organizations including financial institutions encounter risks from each risk

Risk refers to a likelihood, probability, a chance that a loss may occur in a given organization. Most of the times, there is a high risk when there is vulnerability. In this case, vulnerability refers to a weakness that the organization has. Risk assessment refers to the process of identification of potential hazards and proper analysis of the expected losses if those hazards occur (Homeland Security, n.d.). Risk assessment as a way of profiling risk according to impact to the organization. Some organizations have business impact analysis exercises geared towards determination of potential hazards based risk assessment approaches. Organizations’ risk differ depending on the size and the type of business they are doing. The disparity in organizations’ risk call for different adaptation of risk assessment approaches. Even with the disparities of the businesses, proper risk management not only ranks the risks according to the seriousness but also identifies the best methods to control risks in an organization.

Background- In its most basic sense, risk management identifies, allows assessment, and prioritizes risks that are associated and central to an individual project or organization. Risk management allows the organization to be proactive in preventing or mitigating risks, for improving certain processes within the organization, and with the hope of preventing fiscal exposure. However, in almost every organization there are risks individuals are unique and do not always perform at a high level of safety; mechanical or design failures exist, construction projects have supply or labor issues, there are uncertainties in computer or data modification, of course natural disasters, and even deliberate attacks from competitors, etc. Because this is such a common occurrence, national and even international standards have been developed in conjunction with the insurance and regulatory institutions to at least provide basic guidelines to minimize risks risk (International Organization for Standardization, 2009).

Because of rapid economic growth in XXX over the past years has increased the fear of major business failure, risk has become an overwhelmingly dominant business topic. As a result, top managers are now focusing on risk management in their companies. As each business entity struggles with its own set of needs and circumstances, the need and flexibility to address this continuously changing and volatile economic environment, would be extremely challenging and fulfilling to me.

An economic boom filled with fraud, collapsed in the early 2000s with the unravelling of Enron in October 2001 followed by the implosion of WorldCom and many others big corporations. The downfall of these major companies led to a wide spread crisis of confidence in the financial markets. A crisis caused by executive greed was able to be magnified when the gatekeepers, the auditors, lawyers and analysts, responsible for keeping businesses in check, also fell to greed.

According to IRM-AIRMIC-ALARM (2002), risk management actually defines every organisational strategic management; it comprises the process which identifies and treats the internal and external risks and adds sustainable value to the organisation and its stakeholders by decreasing the probability of not achieving the organisation’s overall objectives. The specific institutes suggest that risk management lies in the strategic, tactical and operational levels, and its embodiment in all tasks and roles is required; it is a consistent manner for an organisations’ operation, which leads to effective decision making, efficient allocation and protection of the organisational assets, and enrichment of the organisational

The impact of the risks on global business it is dramatic in our days, changing the entire look of the industries and financial services. Some risks could be anticipated and identified but some could not. Companies now are using more and more key steps and principles to better manage the risks by;

For any company, risk management is an important strategy to have in place. There are a number of factors that need to be reviewed in order to decrease the risk of failure. A presence of a Risk management program would not only set the framework into place to save time, money, and rework but also increases the chance of success for that particular company.

There are many risks for a company in the legal realm and it is important for them to minimize their tort and regulatory risks. A company should have a risk plan in place that can help them succeed. This plan can be a continuously changing plan depending on needed improvements on the plan. A risk plan can be developed easily when you look at the Alumina Inc. case as an example. A company such as Alumina can manage their risks through three basic measures which are preventative, detective, and corrective.

Risk management is a critical issue as all institutions, financial and non-financial, are laden with huge degree of uncertainty. The role of risk management is to help a firm assess the risks that it faces, communicate these risks to the managers of the firm who make decisions concerning risks and manages those risks to ensure that the firm only bears the risks that are within its risk appetite and tolerance. Some risk analysts employ the use of statistical distributions and the correlation among them to aid corporate decision makers on matters concerning risk. However, since the financial crisis, there has been almost a general agreement among financial regulators that flaws in risk management played a major role in worsening the crisis. According to an investigation done by Dr. Simon Ashby in an article, “The 2007/09 Financial Crisis: Learning the risk management lessons”, interviews conducted with about 20 senior risk management officials’ show a common theme among their responses. Majority of them believe that some financial institutions did not properly implement risk management that were aligned with accepted good practices and too much trust was placed in

In light of the recent scandals that rose around big multinationals such as Enron and WorldCom, it has become evident that reform in the traditional corporate operations and objectives was to be encompassed in the organisations corporate strategies. Indeed throughout the years, companies main objectives were defined primarily as being economic objectives, Multinationals developed with sight of profit maximisations regardless to the other incentives, Friedman considered that to be the foundation for a well-managed company, it was further considered that the financing of any other sort of social corporate activities rather unnecessary. The expenses were regarded as expenditures for the owners and investors; this was a time where shareholders rights were regarded as conflicting with other constituents namely the employees, creditors, customers or the community in general. However this interpretation is seen as rather inadequate due to the nature of the amalgamated relation between both constituents. Stakeholders in modern corporate doctrine are considered as a core apparatus for the well functioning of a business. It is however often argued that the only way for a corporation to achieve better results and maximise its profits is to include other people in the process, individuals or organisations with direct or indirect interest in the well performance of the company, that is the reason why modern regulations and codes include a number of stakeholders other than the

Enron’s business risks is when they entered into a number of aggressive transactions involving “special purpose entities” SPEs. The underlying account was questionable and/or fraudulent. Some of the transactions essentially involved Enron receiving borrowed funds without recording the liabilities on the company’s balance sheet. Instead, the inflow of funds were made to look like it came from the sale of assets. This risk made the liabilities on the financial misleading to investors and customers because it made Enron look like they were making more than what they actually were making in profit.

Risk management is the term applied to a logical and systematic method of establishing the context, identifying, analyzing, evaluating, treating, monitoring and communicating risks associated with any activity, function or process in a way that will enable organizations to minimize losses and maximize opportunities. (Lecture notes)Risk Management is also described as 'all the things you need to do to make the future sufficiently certain'. (The NZ Society for Risk Management, 2001)

One well accepted description of risk management is the following: risk management is a systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communicating risk issues. In order to apply risk management effectively, it is vital that a risk management culture be developed. The risk management culture supports the overall vision, mission and objectives of an organization. Limits and boundaries are established and communicated concerning what are acceptable risk practices and outcomes. Since risk management is directed at uncertainty related to future events and outcomes, it is