Developing an Effective Enterprise Risk Management Program- An Overview of the COSO Framework and Implementation Strategies
ERM Road Map
According to the Office of Inspector General (2022), enterprise risk management (ERM) can be defined as addressing all the risks associated with a particular organization by factoring in both the internal and external threats of the enterprise rather than by department. The Office of Management and Budget (OMB) made it mandatory for all federal organizations to have an ERM in 2016, proving the importance of enterprise risk management. An international shipping and logistics company, COSCO has based its ERM on five key elements: governance culture, performance, review and revision, strategy and objective setting, and information communication and reporting. Governance and culture inform how top management sets the company culture and how this culture then affects the organizational culture and performance of the ERM. The second factor stresses the importance of setting clear and conscious objectives for the enterprise risk management framework to function effectively. On the other hand, performance looks at the importance of analyzing threats to the organization’s ability to reach its objectives and apply its strategies. Review and revision emphasize the importance of regularly evaluating the performance of an ERM framework to ensure it is functioning at maximum performance and errors that reduce performance are rectified. Information, communication, and reporting identify that ERM frameworks are continual work. There is a need to constantly analyze and share information concerning the risk management framework (Office of Inspector General, 2022).
One of the methods a company’s management can use to ensure efficient enforcement of an ERM is effective communication. The organization’s management needs to effectively communicate to all its shareholders the importance of the ERM and how the benefits will be accrued to the shareholders. The control can also ensure the ERM is successful by analyzing the factors that can slow down the adoption of the enterprise risk management framework.
Key Risk Indicators
Key risk indicators are a framework used by management to classify the weight a particular risk carries for the organization or how likely the risk is to occur. Organizations use these indicators to assist in administering, reducing, or eliminating enterprise risks. To create key risk indicators, an organization should consider relevance, performance, quantifiability, objectives, and priorities. Key risk indicators include only the most critical risks to a particular organization. One method of identifying such risks is by analyzing the risks that would cause the largest drop in performance and adding them to the KRIs. Another method of identifying KRIs is by considering the relevance or impact of a particular risk; only high-impact threats should be included in the KRI, such as those that would lead to massive data leakages or destruction of the company’s reputation. The objectives and goals of the organization are also key methods of determining key risk indicators; risks that do not distract the company from achieving its goals are not worth including on the KRIs. Risks that pose the highest threat to achieving the company’s objectives should be included in the key performance indicators. The economic impact of risk is another method of determining if a change should be included in the key risk indicators. Threats that have a large economic impact on the organization should be ranked higher on the key risk indicators. Key risk indicators require being quantifiable to enable the ranking of risks. The organization can then handle the threats from the highest-ranked risk to the lowest-ranked risk. Another method that can be used to determine the order of key risk indicators is the strategy the organization intends to implement. Different techniques are affected by other risks and threats, making the organization’s strategy a key determinant of KRIs (Fortino et al., 2018).
A strategic initiative can be defined as a means through which an organization acts to reach its goals and objectives. Combining strategic initiatives and key risk indicators will ensure that an organization can achieve its goals while risking the least threat to the organization. One way to link these frameworks is by providing the strategy formation process that refers to key risk indicators and integrates risk management as part of its strategies. Another method of linking key risk indicators and strategic initiatives is to ensure that the risk management departments and cyber security experts are included in the strategy creation board. Strategic initiatives can also be linked with key risk indicators through effective communication between the management of both initiatives; regular reviews and brainstorming sessions will improve the integration of the two hands. Strategic indicators such as the company’s performance can be incorporated with key risk indicators that prevent the organization from functioning at maximum capacity. These two indicators can be combined to come up with one indicator that improves performance and reduces risk. A feedback system between the two indicators can improve their links and enhance the efficiency of both strategic initiatives and key risk indicators (Li, 2018).
References
Fortino, M. H., Silva, J. M. D., Santos, M. L. D., Neto, M. A., & Leal, M. M. (2018). A theoretical framework for risk management monitoring, review, and improvement process of FLOSS applications using key risk indicators (KRI) at a public agency. In XII Simposio de Informática en el Estado (SIE 2018)-JAIIO 47 (CABA, 2018).
Li, L. (2018). A study on enterprise risk management and business performance. Journal of Financial Risk Management, 7(01), 123.
Office of Inspector General, (2022), ENTERPRISE RISK MANAGEMENT FRAMEWORK version 2.0, OIG-ERM-22-02
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Question 
The following material may be useful for the completion of this assignment. You may refer to the documents Embracing Enterprise Risk Management: Practical Approaches for Getting Started and Developing Key Risk Indicators to Strengthen Enterprise Risk Management at the Committee of Sponsoring Organizations of the Treadway Commission website.
Developing an Effective Enterprise Risk Management Program- An Overview of the COSO Framework and Implementation Strategies
Imagine you are an information technology manager employed by a business that needs you to develop a plan for an effective enterprise risk management (ERM) program. ERM has not been a priority for the organization, but failed corporate security audits, data breaches, and recent news stories have convinced the board of directors that they must address these weaknesses. As a result, the CEO has asked you to create a brief overview of ERM and provide recommendations for establishing an effective ERM program to address this area.
Instructions
Write a 3–4 page paper in which you:
Summarize the COSO Risk Management Framework and COSO’s ERM process.
Recommend the approach management should take to implement an effective ERM program. Include the issues and organizational impact they might encounter if they do not implement an effective ERM program.
Analyze the methods for establishing key risk indicators (KRIs).
Suggest the approach that the organization should take to link the KRIs with the organization’s strategic initiatives.