BBMF3073 RISK MANAGEMENT TUTORIAL 2 & 3

BBMF3073 RISK MANAGEMENTTUTORIAL 2 & 3

Question 3Briefly state the argument that is put forth regarding the benefits of enterprise risk management. [What are the arguments with regards to the benefits of enterprise risk management (ERM)]

PRESENTED BY: DESMOND CHANAnswer: Enterprise Risk Management is about protecting and enhance the share value of the company in order to satisfy the primary business objective of shareholder wealth maximization.

What is Enterprise Risk ManagementArguments:Increase the likelihood of a business realizing its objectives. It mean ERM will equip organizations with techniques to identify, record, and access the opportunities they seek to pursue and exploit. This way will enable organization to become more mature and achieve company objectives.

(b) Build confidence on stakeholders It mean the institutional investors are more focused to learn about companys capabilities for managing risk especially during global financial crisis. This is because the investor wish to understand the degree of risk about their investment whether the return will get affected. Arguments:(c) Improve organizational resilience As the business environment continue change faster, the resilience is essential factor to sustain the business in the long run. The organization resilience is known as the ability of an organization to recover quickly from the difficulties. Therefore, the Enterprise Risk Management (ERM) will support an organization in understanding the change and assist the company prepare to change.

(d) Improve organizational learning Enterprise Risk Management (ERM) can improve organizational learning through past experience and embarking on new change projects to perform effectively. Arguments:(e) Improve risk response decisions Enterprise Risk Management (ERM) provides rigour to identify and select among alternative risk response decision i.e. risk removal, risk reduction or transfer the risk. (f) Optimise allocation of resources It mean if the company have a clear understanding about the risk, it can improve the effective direction and use of management time and resources to manage the risk. In a nutshell.The major benefits of ERM are:Improve business performanceIncrease organizational effectivenessBetter risk reporting

BBMF3073 RISK MANAGEMENTTUTORIAL 2 & 3

Question 4State the advantages of holistic approach to risk management, that is, enterprise-wide or integrated risk management.

Answer: Holistic Approach is the way to use Enterprise Risk Management (ERM) to maximize the companys value by reducing the cost of risk. What is Holistic ApproachAdvantages: Improve corporate governance Enable management to operate effectively Align risk appetite (a natural desire to satisfy the need) and strategy