Application of Enterprise Risk Management System
Overview
This paper examines the application of Enterprise Risk Management (ERM) systems in modern organizations, with a focus on the COSO framework. It explores how organizations can effectively manage risks while pursuing strategic objectives through proper governance, risk appetite determination, and implementation of the five core elements of internal control.
What this research paper covers
- Introduction to risk management challenges in the 21st century global marketplace
- COSO framework overview and its five core elements: information & communication, monitoring, control activities, control environment, and risk assessment
- Risk appetite determination and the three-step process for developing, communicating, and monitoring organizational risk tolerance
- COSO model structure including governance and strategy setting components
- Benefits and applications of the COSO framework for organizational effectiveness
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Application of Enterprise Risk Management System
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In the 21st century, many organizations are struggling to compete in the emerging real-time global marketplace. As a result, boards of directors leading publicly traded companies are under increasing pressure to bolster oversight in the management of risks (Ballou, Heitger, & Stoel, 2011). Risk management can be defined as a way through which an organization manages stakeholders, processes, relations, and roles of its operations to achieve the goals and objectives of the organization. In recent years, COSO and NACD have developed white papers that can be used by organizations in improving risk management processes and enhance cooperation among senior management in managing risks. A vital element of the risk management process is to provide senior management with accurate and reliable information for informed decision making. This paper will focus on COSO.
COSO is a thought leadership document by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (Rittenberg & Martens, 2012). Developed in1992, COSO framework, is a model for evaluating internal controls and has been accepted as a definitive datum against which organization measure the effectiveness of internal control of the system. COSO is based on five core elements that form the foundation of healthy inter-organizational control. These are; information & communication, monitoring, control activities, control environment, and risk assessment (DeLoach & Thomson, 2014).
Often, organizations must make business decisions towards the growth of the organization.