COSO’s Strengthening Enterprise Risk Management for Strategic Advantage focuses on specific areas where the board of directors and management can work together to improve the board’s risk oversight responsibilities and ultimately enhance the entity’s strategic value. This thought paper expands on COSO’s Effective Enterprise Risk Oversight: The Role of the Board of Directors and provides further detail on the four specific areas discussed in that document. While incorporating those four areas, it is also important to consider the following risk responsibilities:
- Identifying an organization’s risk appetite
- Realizing benefits of changes in risk management and board oversight
- Re-examining existing risk management approaches
- Incorporating core ERM principles to strengthen risk management
- Developing and using key risk indicators to provide relevant and timely information to both the board and senior management
The thought paper discusses the reality that implementing an enterprise wide approach to risk management that adds value to the entity is a challenging task. Management should work closely with their boards to ensure that both have a clear understanding of the significant risk exposures facing the entity. Enterprise risk management practices should be integrated with business strategy in a way that their existence enhances the strategic value of the company. Having an effective risk management process will aid in executing the entity’s strategic objectives. By working with the board to create a deeper understanding of the entity’s key risks, management can improve the risk management processes and therefore achieve a strategic advantage.
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