BBMF3073 RISK MANAGEMENT

TUTORIAL 2 & 3

Question 3
Briefly 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 CHAN

Answer:
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 Management

Arguments:
(a) 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
performance

Increase
organizational
effectiveness

Better risk reporting

BBMF3073 RISK MANAGEMENT

TUTORIAL 2 & 3

Question 4
State 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 Approach

Advantages:
Improve corporate governance
Enable management to operate effectively
Align risk appetite (a natural desire to satisfy the need) and
strategy