Is Traditional Risk Management Important

Traditional Risk Management or ERM Important? In my opinion, I think that ERM is more important. The reason is because ERM is focus on the whole organisation as a whole. ERM is underlying principles where every entity, whether for profit- or not, exists to realize add value for its stakeholders. Value is created, preserved, or eroded by management decisions in all activities, from setting strategy to operation the enterprise day-to-day. ERM also supports value creation by enabling management to deal effectively with potential future events that create uncertainty. Respond in a manner that reduces the likelihood of downside outcomes and increases the upside.

However, a traditional risk management is focus risk separately and independently

Benefit of Enterprise Risk Management No risk management process can create a risk-free environment. ERM helps management to operate more effectively in a business environment. ERM provides enhanced capability to increase the likelihood of a business realising its objectives. ERM will equip organisations with techniques to identify, to record and to assess the opportunities they seek to proactively pursue and exploit. At the same time it will support the identification and conscious management of the risks associated with selected opportunities to ensure that bottom-line performance is enhanced rather than eroded. In this way it will enable organisations to mature and realise their stated objectives. inherent and a residual basis’. (Richard M, Miles E.A Everson, Frank J. Martens & Lucy E. Nottingham, 2004) Additionally, risk response, ‘management selects risk responses is to avoid, accept, reduce and share risk to develop a set of actions to align risks with the entity’s risk tolerances and risk appetite’. (Richard M, Miles E.A Everson, Frank J. Martens & Lucy E. Nottingham,

In order to establish ERM, these are the components that must be made available sound system of internal control to safeguard shareholder investment. These are the eight areas of ERM: internal control event, risk culture, objective setting, event identification, risk assessment, risk response, control activities and, information and communication. All these areas provide a comprehensive framework for organisation to deal with risk. The first area is internal control environment. According to Committee of Sponsoring Organisations (COSO), ‘the internal control environment encompasses the tone of an organization, and sets the basis for how risk is viewed and addressed by an entity’s people, including risk management philosophy and risk appetite, integrity and ethical values, and the environment in which they operate’. (Richard M, Miles E.A Everson, Frank J. Martens & Lucy E. Nottingham, 2004) Next is objective setting. Objective setting ‘must exist before management can identify potential events affecting their achievement. ERM ensures that management has in pace a process to set objectives and that the chosen objectives support and align with the entity’s mission and are consistent with its risk appetite’. (Richard M, Miles E.A Everson, Frank J. Martens & Lucy