Application of risk to business enterprise: Enterprise Risk Management (ERM)

Enterprise Risk Management or ERM deals with risks and opportunities affecting value creation or preservation, and is defined as follows:

ERM is a process, effected by an entity’s Board of Directors, management and other personnel, applied in strategy-setting and across the enterprise, designed to identify potential events that may affect the entity and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

The definition reflects certain fundamental concepts.

ERM is:

• a process, ongoing and flowing through an entity
• effected by people at every level of an organisation
• applied in the strategy setting
• applied across the enterprise, at every level and unit, and includes taking an entity level portfolio view of risk
• designed to identify potential events that, if they occur, will affect the entity and the management of risk within its risk appetite
• what enables the provision of reasonable assurance to an entity’s management and Board of Directors
• geared to the achievement of objectives in one or more separate but overlapping categories.

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