Systematic Risk Management Blog

Enterprise Risk Management (ERM): an Acronym in Need of a Definition

Posted by Vernon Grose on Tue, Mar 26, 2013 @ 06:03 AM

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What is ERM? Can anyone agree?

Enterprise Risk Management (ERM) broke over the horizon at the end of the 20th century as a welcomed and heralded improvement – a broadened scope for managing risk, embracing a wider range of operational, strategic and stakeholder concerns. Initially established in the private sector, it has now been adopted by public organizations as well.

Unfortunately, ERM has serious flaws. Perhaps the most fundamental is that ERM has attained status without a universal definition of what it is.

Consider these attempts at defining ERM:

  • The discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risks from all sources for the purpose of increasing the organization’s short and long-term value to its stakeholders. -- Casualty Actuarial Society
  • A process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. – COSO (Committee of Sponsoring Organizations of the Treadway Commission)
  • A comprehensive and integrated framework for managing credit risk, market risk, operational risk, economic capital, and risk transfer in order to maximize firm value. -- James Lam in Enterprise Risk Management

So what is ERM -- a discipline, a process, or a framework? Curiously, David L. Olson and Desheng Dash Wu, in their book ENTERPRISE RISK MANAGEMENT, have a section “What is ERM?” that only discusses ERM – but never defines it.

ERM's identity crisis is troubling enough. Unfortunately, ERM has other serious flaws.

My new eBook, "Five Weaknesses of Enterprise Risk Management," identifies and explains what these flaws are in an easy-to-read format. 

The eBook explains:

  • The history of ERM
  • How ERM failed to anticipate the global financial crisis
  • The 5 weaknesses of ERM
  • An outline for ERM reform
  • What's at stake for you -- and society -- with ERM

This eBook is a must-read for CEOs, CFOs, risk managers and others considering ERM. You can download it for free here.

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Topics: enterprise risk management, ERM, classical risk management, global financial crisis