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PART II: Enterprise Risk Management, Culture, and Control
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PART II: Enterprise Risk Management, Culture, and Control
by
Enterprise Risk Management, 2nd Edition
Cover
Title Page
Copyright
Foreword to the Second Edition
Foreword to the First Edition
PART I: Overview and Drivers of Enterprise Risk Management
CHAPTER 1: Enterprise Risk Management
WHAT IS ENTERPRISE RISK MANAGEMENT?
DRIVERS OF ENTERPRISE RISK MANAGEMENT
ABOUT THIS SECOND EDITION
SUMMARY OF THE BOOK CHAPTERS
FUTURE OF ERM AND UNRESOLVED ISSUES
ABOUT THE EDITORS
NOTES
CHAPTER 2: A Brief History of Risk Management
INTRODUCTION
RISK MANAGEMENT IN ANTIQUITY
AFTER THE MIDDLE AGES
THE PAST 100 YEARS
FINAL WORDS
ABOUT THE AUTHORS
NOTES
CHAPTER 3: Strategic Risk Management
INTRODUCTION
THE FOUNDATION
THE FRAME
THE FINISH: STRUCTURE
THE FINISH: CULTURE
CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 4: The Role of the Board of Directors and Senior Management in Enterprise Risk Management
INTRODUCTION
GOVERNANCE EXPECTATIONS FOR BOARD OVERSIGHT OF RISK MANAGEMENT
DELEGATION OF RISK OVERSIGHT TO BOARD COMMITTEES
FORMALIZING RISK MANAGEMENT PROCESSES
SENIOR EXECUTIVE LEADERSHIP IN RISK MANAGEMENT
THE ROLE OF THE INTERNAL AUDIT FUNCTION IN ERM
EXTERNAL AUDIT AS AN INDEPENDENT SOURCE OF KEY RISK IDENTIFICATION
ERM IMPLEMENTATION STRATEGIES
ROLE OF THE AUDIT COMMITTEE
ROLE OF THE BOARD
TRAINING
BOARD COMPOSITION
REPORTING
COMPLIANCE
CULTURE
CONCLUSION
ABOUT THE AUTHOR
NOTES
CHAPTER 5: How to Teach Enterprise Risk Management
INTRODUCTION
PEDAGOGIC APPROACHES: INTRODUCING COURSE CONTENT
TRADITIONAL LECTURE
LEARNER-CENTERED TEACHING ( LCT ) FLIPPED-CLASSROOM
LEARNER-CENTERED ACTIVITIES (LCAS)
APPLYING LCA: APPLICATIONS AND ANALYSES
CONCLUSION
APPENDIX 5.A: LEARNER-CENTERED ACTIVITIES (LCAS)
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 6: The Role of the Board in Risk Management Oversight
THE CHALLENGES
RISK MANAGEMENT METHODOLOGIES
ISO 31000
COSO ERM 2004
WHAT IS ENTERPRISE RISK MANAGEMENT?
ACCOUNTABILITY FOR BOARD OVERSIGHT
OVERVIEW OF THE BOARD'S ROLE
THE BOARD AND INTERNAL AUDIT
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
PART II: Enterprise Risk Management, Culture, and Control
CHAPTER 7: ERM Frameworks
INTRODUCTION
FRAMEWORKS AND THEIR IMPORTANCE
COSO ENTERPRISE RISK MANAGEMENT—INTEGRATING STRATEGY WITH PERFORMANCE (COSO ERM)
ISO 31000:2018, RISK MANAGEMENT—GUIDELINES (ISO 31000)
SIMILARITIES AND DIFFERENCES
THE INFLUENCE OF THESE FRAMEWORKS
ADVICE AND CLOSING REMARKS
REFERENCES
ABOUT THE AUTHORS
CHAPTER 8: Becoming the Lamp Bearer
THE ORIGINS OF THE CRO
THE CRO AS COMPLIANCE CHAMPION
THE CRO AS MODELING EXPERT
THE CRO AS STRATEGIC CONTROLLER
THE CRO AS STRATEGIC ADVISOR
WHICH CRO ROLE TO PLAY?
CONCLUSION
ACKNOWLEDGMENTS
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 9: Creating a Risk-Aware Culture
INTRODUCTION
WHAT IS RISK CULTURE?
HOW TO CREATE A RISK-AWARE CULTURE
LEVERAGING THE POWER OF RISK CULTURE IN A CHANGING ENVIRONMENT
CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTE
CHAPTER 10: Key Risk Indicators
INTRODUCTION
WHAT IS A KRI?
HOW ARE KRIs DEVELOPED?
HOW AND WHEN SHOULD KRIS BE USED?
CONCLUSION
REFERENCE
ABOUT THE AUTHORS
CHAPTER 11: Decision Risk Management
INTRODUCTION
THE PROCESS OF DECISION MAKING
THE DANGER OF RELYING ON HUMAN PERCEPTIONS
TWO INTERLINKED PARTS OF A DECISION
IDENTIFYING DECISION UNCERTAINTIES
ANALYZING UNCERTAINTIES AND PRIORITIZING/BALANCING EFFORTS
REPORTING AND LEVERAGING RISK MANAGEMENT
FOLLOW THROUGH AND DRIVE INTELLIGENT RISK TAKING
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 12: Increasing Adoption of Enterprise Risk Management in the U.S. Federal Government
INTRODUCTION
ORIGINS OF ERM IN THE U.S. FEDERAL GOVERNMENT
IMPLEMENTING ERM AT A FEDERAL AGENCY: THE IMPORTANCE OF CULTURAL ACCEPTANCE
DIFFERENCES BETWEEN ERM IN GOVERNMENT AND ERM IN A PRIVATE COMPANY
UNUSUAL CHARACTERISTICS OF THE GOVERNANCE FRAMEWORK OF THE UNITED STATES
NEXT STEPS FOR ERM IN THE U.S. FEDERAL GOVERNMENT
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 13: Toolmaking in Risk Management
SUMMARY
INTRODUCTION
FORMALIZING RISK APPETITE—CAN IT WORK?
FROM FATAL REMEDIES TO FORMALITY THAT WORKS—AND HOW NEW ACCOUNTING BEGINS
CONSTRUCTING RISK APPETITE: CASE STUDIES
DISCUSSION
CONCLUSION
APPENDIX 13.A: CONSULTING REPORTS: DEFINITIONS OF RISK APPETITE
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 14: Incorporating Risk Acumen and Enterprise Risk Management into Innovation Approaches
INTRODUCTION
LEARNING TO LOOK AROUND THE CORNER
ENTERPRISE RISK MANAGEMENT SHOULD BE INVOLVED
TWO STAPLE TOPICS—CHANGE AND INNOVATION
USING TOOLS TO HELP IDENTIFY THE RISK AND UNCERTAINTY
EMBRACING RISK AND ENCOURAGING INNOVATION
INNOVATION PROCESSES
INNOVATION ESSENTIALS
A PORTFOLIO APPROACH TO INNOVATION
STAGES OF INNOVATION
TEST, NOT BET?
BUSINESS MODEL INNOVATION
THE IMPORTANCE OF RISK ASSESSMENTS IN INNOVATION
CHANGING THE THINKING AND CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 15: Scenario Planning as an Enrichment of Enterprise Risk Management
PURPOSE, SCOPE, AND PRACTICE OF SCENARIO PLANNING
METHODS FOR SCENARIO DEVELOPMENT
SCENARIO PLANNING, STRATEGIES, AND DECISIONS
EMBEDDING SCENARIO PLANNING PRACTICE
REFERENCES
WEBSITES
ABOUT THE AUTHOR
NOTES
CHAPTER 16: Unconscious Bias and Risk Management
INTRODUCTION
BIASES: CONSCIOUS VERSUS UNCONSCIOUS
BIASES EXIST AT ALL LEVELS OF AN ORGANIZATION
WHAT CAUSES COGNITIVE BIASES AND DECISION-MAKING ERRORS IN RISK MANAGEMENT?
EVIDENTIARY BIASES
DECISION-MAKING BIASES
PROBABILITY BIASES
REDUCING BIAS
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
CHAPTER 17: Cognitive Bias
INTRODUCTION
STRATEGY 1: SLOW DOWN THINKING AND USE DETAILED RISK CRITERIA
STRATEGY 2: BROADEN THE CONTEXT
STRATEGY 3: USE PROBABILITY ESTIMATES CAUTIOUSLY
STRATEGY 4: ENGINEERED INTERACTION
CONCLUSION
REFERENCES AND FURTHER READING
ABOUT THE AUTHOR
PART III: ERM Tools and Techniques
CHAPTER 18: Risk Appetite and Tolerance in Competitive Strategy
INTRODUCTION
CONSIDERING RISK APPETITE AND TOLERANCE
ABILITY TO TAKE RISK
STRATEGY AND GOVERNANCE
WILLINGNESS TO TAKE RISKS
WHICH RISKS TO KEEP
KEY ELEMENTS IN THE ARTICULATION OF THE RISK APPETITE AND TOLERANCE
SUMMARY OF KEY ELEMENTS
ABOUT THE AUTHORS
NOTES
CHAPTER 19: How to Plan and Run a Risk Management Workshop
INTRODUCTION
WHAT IS A RISK WORKSHOP?
WHY USE WORKSHOPS?
HOW TO CONDUCT A RISK WORKSHOP
EXECUTION
TECHNIQUES FOR PLANNING AND FACILITATING EFFECTIVE RISK WORKSHOPS
CONCLUSION
APPENDIX 19.A: FACILITATING ONLINE WORKSHOPS
APPENDIX 19.B: “BLACK SWAN” WORKSHOPS
REFERENCE
ABOUT THE AUTHOR
CHAPTER 20: How to Prepare a Risk Profile
INTRODUCTION
DEFINITION AND USES OF A CORPORATE RISK PROFILE
HOW TO PREPARE A RISK PROFILE
ADVANTAGES AND DISADVANTAGES OF INFORMATION-GATHERING METHODOLOGIES
CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 21: How to Allocate Resources Based on Risk
INTRODUCTION
RISK POLICY AND A CENTER OF EXCELLENCE FOR RISK MANAGEMENT
THE CONSEQUENCE DOMAIN
RISK-BASED BUSINESS PROCESSES AND ORGANIZATIONAL CONSIDERATIONS
CONCEPTS, METHODS, AND MODELS ENABLING RISK IDENTIFICATION, EVALUATION, MITIGATION, PRIORITIZATION, AND MANAGEMENT
INFORMATION REQUIREMENTS AND CHALLENGES
MEASURES OF EFFECTIVENESS FOR CONTINUOUS IMPROVEMENT
CONCLUSION
ABOUT THE AUTHOR
NOTES
CHAPTER 22: Quantitative Risk Assessment in ERM
INTRODUCTION
RISK ASSESSMENT: FOUR ALTERNATIVE APPROACHES
AGGREGATING PROBABILITIES AND IMPACTS
TOTAL CORPORATE RISK: AN ILLUSTRATION
INCORPORATING RISK QUANTIFICATION IN THE BUSINESS PLANNING PROCESS
SENSITIVITIES AND SCENARIOS
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 23: Risk Appetite
INTRODUCTION
CONTEXT AND PRINCIPLES
METHODOLOGY
DISCUSSION
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
CHAPTER 24: Organizational Decision Making
INTRODUCTION
WHAT'S AT RISK?
EVOLVING RISK DEFINITIONS
THE BALANCING ACT
DEFINING THE RISK APPETITE
TARGET RISK APPETITE
INTERPRETING THE RISK APPETITE
OBJECTIVE DECISION-MAKING MODEL
EMBEDDING THE RISK APPETITE INTO THE BENEFIT SCORE
CONCLUSION
REFERENCES
ACKNOWLEDGMENTS
ABOUT THE AUTHOR
NOTES
CHAPTER 25: The Challenges of and Solutions for Implementing Enterprise Risk Management*
1. THE IMPORTANCE OF ENTERPRISE RISK MANAGEMENT
2. THE CHALLENGES
3. THE SOLUTIONS
4. CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTE
PART IV: Types of Risk
CHAPTER 26: Market Risk Management and Common Elements with Credit Risk Management
INTRODUCTION TO CREDIT RISK AND MARKET RISK
RESPONDING TO CREDIT AND MARKET RISK
MEASURING MARKET RISK
MARKET RISK MANAGEMENT WITH FORWARD-TYPE PRODUCTS
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 27: Credit Risk Management
CREDIT RISK ANALYSIS
AN ANALYSIS OF THE 2007–2009 CREDIT CRISIS
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 28: Operational Risk Management
INTRODUCTION
WHAT IS OPERATIONAL RISK AND WHY SHOULD YOU CARE ABOUT IT?
IS RISK ALL BAD?
HOW DO YOU ASSESS OPERATIONAL RISKS, PARTICULARLY IN A DYNAMIC BUSINESS ENVIRONMENT?
WHY YOU NEED TO DEFINE RISK TOLERANCE FOR ALIGNED DECISION MAKING
WHAT CAN YOU DO TO EFFECTIVELY MANAGE OPERATIONAL RISK?
HOW DO YOU ENCOURAGE A CULTURE OF RISK MANAGEMENT AT THE OPERATIONAL LEVEL?
HOW DO YOU ALIGN OPERATIONAL RISK MANAGEMENT WITH ENTERPRISE RISK MANAGEMENT?
CONCLUSION
ABOUT THE AUTHOR
NOTES
CHAPTER 29: Managing Financial Risk and Its Interaction with Enterprise Risk Management
INTRODUCTION
WHAT IS FINANCIAL RISK AND HOW IS IT MANAGED?
THEORETICAL UNDERPINNINGS OF FINANCIAL HEDGING AND EMPIRICAL FINDINGS
INTERACTION OF FINANCIAL HEDGING WITH OTHER TYPES OF RISK MANAGEMENT
WHAT CAN WE LEARN ABOUT ERM GIVEN OUR KNOWLEDGE OF FINANCIAL HEDGING?
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 30: Climate Change Risk
INTRODUCTION
THE CAUSES OF CLIMATE CHANGE
THE EFFECTS OF CLIMATE CHANGE
POSSIBLE GLOBAL SOLUTIONS
IMPLICATIONS FOR ENTERPRISE RISK MANAGEMENT
CONCLUSION
APPENDIX
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 31: Cybersecurity
INTRODUCTION
CYBERSECURITY IN THE ENTERPRISE: WHAT CAN GO WRONG?
HOW TO PROTECT YOURSELF: A BEST EFFORTS APPROACH TO SECURING YOUR CRITICAL CYBER ASSETS
CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 32: Foreign Exchange Risk Management
INTRODUCTION
CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 33: Risk Management and Outsourcing
INTRODUCTION
OBJECTIVES OF OUTSOURCING
OUTSOURCING-RELATED RISKS
MITIGATION APPROACHES
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 34: Leveraging ERM for Growth
INTRODUCTION
RETHINKING RISK THROUGH A GROWTH LENS
THE UNREALIZED POTENTIAL OF ERM
COMPONENTS OF INTEGRATING ERM INTO STRATEGIC DECISIONS
CONCLUSION
ACKNOWLEDGMENTS
ABOUT THE AUTHOR
NOTES
CHAPTER 36: Managing Risk Associated with Project Delivery
INTRODUCTION
THE MANY FACES OF RISK—BEFORE, DURING, AND AFTER
MANAGING PROJECT RISK—IT'S A TEAM SPORT
SOAR WITH THE EAGLES AND PECK WITH THE CHICKENS
SCOPE, QUALITY, EFFORT, RISK, AND TIME (SQERT)
DON'T FORGET ABOUT THE HUMANS
FOLLOW THE LEADER
DO A RISK WORKSHOP EARLY AND REVISIT
APPROACHING THE FINISH LINE
RISK DOES NOT DISAPPEAR AT GO-LIVE
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
PART V: Special Topics and Case Studies
CHAPTER 37: The Rise and Evolution of the Chief Risk Officer
INTRODUCTION
HYDRO ONE
GETTING STARTED WITH ERM
PROCESSES AND TOOLS
CORPORATE RISK PROFILE
QUANTIFYING THE UNQUANTIFIABLE
BENEFITS OF ERM AND OUTCOMES AT HYDRO ONE
CONCLUSION
ABOUT THE AUTHORS
NOTES
CHAPTER 38: Enterprise Risk Management in the Public Sector
INTRODUCTION
FUNCTION OF THE DEPARTMENT'S RISK MANAGEMENT ORGANIZATION1
ENTERPRISE RISK MANAGEMENT AT THE DEPARTMENT OF COMMERCE
ATTRIBUTES OF AN ERM PROGRAM: USING THE SMART GOAL SYSTEM
THE DEPARTMENT OF COMMERCE ERM AS A BEST PRACTICE
CONCLUSION
ABOUT THE AUTHOR
NOTES
CHAPTER 39: A Review of Academic Research on Enterprise Risk Management
INTRODUCTION
IDENTIFICATION OF FIRMS IMPLEMENTING ERM
FIRM CHARACTERISTICS ASSOCIATED WITH ERM IMPLEMENTATION
ERM AND FIRM PERFORMANCE
CASE STUDIES ON ERM
CONCLUSION
REFERENCES
ABOUT THE AUTHORS
NOTES
CHAPTER 40: Lessons from the Academy
THE HIGHER EDUCATION ENVIRONMENT
EMERGENCE OF ERM IN HIGHER EDUCATION
ADOPTING AND IMPLEMENTING ERM IN COLLEGES AND UNIVERSITIES
THE UNIVERSITY OF WASHINGTON: A JOURNEY OF DISCOVERY
EVOLUTION OF ERM AT UW
ERM STRUCTURE AT UW
PRESIDENT'S ADVISORY COMMITTEE ON ERM (PACERM)
UW'S ERM MODEL
OUTCOMES AND LESSONS LEARNED
WHAT NEXT? CURRENT PRIORITIES AND FUTURE DIRECTION
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 41: Enterprise Risk Management
INTRODUCTION
LESSONS FROM THE ERM PROCESS
LESSONS FROM INTEGRATING ERM WITH ONGOING MANAGEMENT INITIATIVES
SOME KEY VALUE LESSONS FROM ERM
CONCLUSION
REFERENCES
FURTHER READING
ABOUT THE AUTHORS
NOTES
CHAPTER 42: Financial Reporting and Disclosure Risk Management
THE IMPORTANCE OF DISCLOSURE MANAGEMENT AND ERM
FOUNDATIONS IN THE UNITED STATES
DISCLOSURE AND SARBANES-OXLEY
IMPORTANT SOX SECTIONS
OTHER FINANCIAL REPORTING
RE-EXAMINING FAIR VALUE ACCOUNTING (ASC 820): THE DEBATE RETURNS
RISK IDENTIFICATION, MONITORING, AND REPORTING
FINANCIAL REPORTING CHALLENGES TODAY
CONCLUSION
REFERENCES
ABOUT THE AUTHOR
NOTES
CHAPTER 43: Directors and Risk
INTRODUCTION
ROLE OF THE BOARD OF DIRECTORS AND DIRECTORS IN GENERAL
RISK MANAGEMENT
METHODOLOGY
RESULTS
DISCUSSION
CONCLUSION
APPENDIX 43.A
REFERENCES
ABOUT THE AUTHORS
Index
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CHAPTER 6: The Role of the Board in Risk Management Oversight
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CHAPTER 7: ERM Frameworks
PART II
Enterprise Risk Management, Culture, and Control
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