Management Control Systems : Enterprise Risk Management

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Enterprise Risk Management

Ivie Uduebho

The business environment is constantly changing; it is unpredictable, extremely volatile and complex. This makes businesses exposed to risk because of the nature of the environment. It is therefore important for businesses to make strategic decisions on how to either reduce or make the effect of the risk less severe as much as possible. Businesses have to identify and manage their risks to ensure their success and continuation. According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), “Uncertainties present both risks and opportunities, with potential to erode or enhance value. Risk
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Economic slowdown/slow recovery
2. Regulatory/legislative changes
3. Increasing competition
4. Damage to reputation/brand
5. Failure to attract or retain top talent
6. Failure to innovate/meet customer needs
7. Business interruption
8. Commodity price risk
9. Cash flow/liquidity risk
10. Political risk/uncertainties
The volume and complexities of these risks affecting organizations are increasing and they are making it much more difficult for board of directors and senior executives to effectively oversee the constantly evolving complex of the risks in their organization’s portfolio. In 2006, Ernst & Young published a report, “Board Members on Risk,” and the report showed that about 72 percent of board members that were interviewed believed that the overall level of risk that companies face has increased, with 41 percent indicating that overall levels of risk have increased significantly.
Enterprise Risk Management
Clearly, there is a correlation between effective risk management and a well-managed business. Over time, a business that cannot manage risk effectively will not prosper and, perhaps fail. There was a period of that a lot of high-profile business scandals and failures where the company stakeholders suffered tremendous loss. This gave rise to calls for organizations to enhance their corporate governance and risk management using new laws and regulations. The need for an enterprise risk management framework, providing key principles and
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