Banque, Enterprise Risk Management, sustainable competitive advantage, ERM, risk's quantification, sustainable value, ? Committee of Sponsoring Organization of the Treadway Commission, COSO, bank for International Settlements, BIS, basel committee on banking supervision
Enterprise Risk Management (ERM) has been getting an increasing amount of attention in recent years. While many industries, regions of the world and professional organizations take different names for their general framework, but the underlying theme is the same. Companies and organization are recognizing the value in assessing, prioritizing and quantifying the risk that they have to face with. They have to choose the most effective exploitation or mitigation to manage the risk effectively.
Many models of risk's quantification are created, however it is necessary to adapt them to each sector, because an efficient risk management is capable to have some opportunities on the market and to face competition.
In this paper, we are focusing firstly on what is the risk management especially the Enterprise Risk Management. Secondly we will see how the enterprise risk management allows the company to create sustainable value. Finally I would to emphasis on a specific example of the banking industry, which is my work environment.
[...] However, in the end, responding to Basel II is not simply a costly exercise in achieving compliance; rather, it is a critical opportunity for gaining competitive advantage. Financial Services Institutions must seize this opportunity to more accurately measure and better manage risk across the entire enterprise. These efforts will yield significant returns in terms of reduced capital reserve requirements, increased profitability and greater market share. In order to realize these returns and move from compliance to competitive advantage, Financial Service Institutions must leverage Enterprise Content Management as the central technology in their ERM architecture. [...]
[...] These organizations are aggressively pursuing compliance today as an opportunity for competitive advantage tomorrow. It is intended that the Standardized Approach for risk management proposed under Basel II will not increase the aggregate regulatory capital requirements for banks that elect to employ this model. But it is obvious that banks that leverage the advanced Internal Ratings-Based (IRB) approach for credit risk and, more importantly, the Advanced Measurement Approach (AMA) for operational risk will gain greater benefit from the new Capital Accord. [...]
[...] Improved capital efficiency: while difficult measure, companies can gain shareholder value through improved risk awareness and risk on external communication. Consequently the company could improve its external perception regarding management ability to identify critical business and protect shareholder capital. Consequently a company with an ERM policy could help the companies to compete aggressively in the marketplace for the deals that offer the biggest risk-adjusted spread. Companies are able to overcome the risk problem because Enterprise Risk Management makes transparent the true cost of risk and could make long term profit by identify the right business line. [...]
[...] It is a tangible approach to addressing organizational and financial risk notably. ERM, ultimately, works towards enhancing shareholder value and competitive advantage A present state of Enterprise Risk Management Enterprise Risk Management is a hot topic in today's business environment. Demands from analysts, regulators and stakeholders in response to legislation and business events helped glint initial interest. Business leaders such as the CFO, treasurer, risk manager and Chief Risk Officer are recognizing the ERM framework as a way to: To provide transparency to analysts, auditors and stakeholders Help in the development of a financial disclosure framework that could support regulatory compliance initiatives (we will see in the following part) Promote better capital allocation and decision making. [...]
[...] Enterprise Risk Management: a sustainable competitive advantage? The COSO's methodology as a great opportunity to face competition COSO defines eight keys elements to the ERM framework that begins with: An understanding of an organization”s internal environment Moves on to risk identification and prioritization Touches on the assessment and quantification risk Finally discusses risk response, mitigation, and monitoring activities The underlying premise of Enterprise Risk Management is that every entity exits to prove value for its stakeholders. All entities face uncertainty and the challenge for management is to determine how much uncertainty and the challenge to accept as it strives to grow stakeholder value. [...]
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