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Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice

Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice Since ERM is a relatively recent activity and has yet to be fully implemented in most companies, there has been little academic research about its accomplishments and about the obstacles to further progress. In particular, very little has been published about corporate attempts to identify and manage corporate strategic risks while integrating them into a corporate‐ wide ERM framework. This article uses responses collected from a survey of 271 risk and financial executives in North American and European companies to address the following questions: What forces are behind this push for a more organized and integrated management of significant risks? What challenges are companies encountering as they implement implement ERM? Once fully in place, how does ERM affect the company's ability to implement its strategy? The primary drivers of ERM are said to be corporate governance requirements and other regulatory pressures, and management and investor demand for greater understanding of strategic and operating risks. The benefits of full ERM implementation are increased management accountability and better governance practices, greater managerial understanding of and consensus about corporate strategy, and, in some cases, higher credit ratings and hence a lower cost of capital. The tools and techniques to measure the impact of strategic risks appear to vary, depending on the stage of ERM implementation. For advanced ERM companies, the most frequently used tools and techniques are key risk indicators, self‐assessments, and scenario analysis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice

Journal of Applied Corporate Finance , Volume 18 (4) – Sep 1, 2006

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Publisher
Wiley
Copyright
Copyright © 2006 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.2006.00114.x
Publisher site
See Article on Publisher Site

Abstract

Since ERM is a relatively recent activity and has yet to be fully implemented in most companies, there has been little academic research about its accomplishments and about the obstacles to further progress. In particular, very little has been published about corporate attempts to identify and manage corporate strategic risks while integrating them into a corporate‐ wide ERM framework. This article uses responses collected from a survey of 271 risk and financial executives in North American and European companies to address the following questions: What forces are behind this push for a more organized and integrated management of significant risks? What challenges are companies encountering as they implement implement ERM? Once fully in place, how does ERM affect the company's ability to implement its strategy? The primary drivers of ERM are said to be corporate governance requirements and other regulatory pressures, and management and investor demand for greater understanding of strategic and operating risks. The benefits of full ERM implementation are increased management accountability and better governance practices, greater managerial understanding of and consensus about corporate strategy, and, in some cases, higher credit ratings and hence a lower cost of capital. The tools and techniques to measure the impact of strategic risks appear to vary, depending on the stage of ERM implementation. For advanced ERM companies, the most frequently used tools and techniques are key risk indicators, self‐assessments, and scenario analysis.

Journal

Journal of Applied Corporate FinanceWiley

Published: Sep 1, 2006

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