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Introduction for The influence of Enterprise risk management practice
on the financial performance
In
this plan, we are going to discuss enterprise risk management related to the origination
and explain how the enterprise risk management affects the financial
performance of the organization. Financial performance of the organization has
to face many problems and organization needs to manage all these issues related
to risk factor. The risk management belong to the factors that affect the
performance of the organization by using different strategies and also handle
all the risks of financial sector of the organization.
Enterprise risk management is not a simple
process of removing the risk elements but it also provides management of risk
related to operation of the firm. And focus on maximizing the opportunities and
minimizing the threats that affect the performance of the organization. Within
integrated approach, the enterprise management is a complete set of process
that organization undertakes to remove or less all the risk categories. In the
ordinary course of carry out its business operations, the enterprise risk
management explains as process that discuss the organization deals that mange
the risk threats of the organization.
Different
risk related to the operations of the organization include hazard risk,
compliance, operational, reputational, market, financial, credit and strategic
factors handle by the enterprise risk management. These risks also disturb the
financial performance, profitability and effectiveness of the organization. Enterprise
risk management framework handle the interrelationship between the risks and
recognize that how these risk can be treated in all the business activities of
all levels. The reason behind the implementation of the enterprise risk
management is to develop a balance between the risk management and corporate
performance and also enhance the value of shareholders. In the face of
financial complexity, the optimal balance should be developing to fulfill the
objectives of the organization and its effective corporate strategy. To
minimize and mitigate these risks and communicate risk information for the
management to take better decision, the enterprise risk management is
aggregated and integrate all type of risks through using different risk related
tools.
Enterprise
risk management explain as an integrated process that develop through the board
of director of the organization to mention the potential threats that handle
the financial performance. So enterprise risk management process is essential
for the organization related risk and provides better solution to handle these
risks in most effective way and provide maximum benefit to the organization.
Background/Research motivation:
Enterprise risk management help to
handle the risk related to organization and provide a better solution for the
organization. Different set of process help to settle the financial sector to
make the integrated impact. This process include identify specific risks facing
financial institution, linking the
enterprise risk management strategy with the identifiable threats and
establishment of enterprise risk management strategy and a construct and
infrastructure for the risk management and develop a environment of enterprise
risk management. The practice of the ERM explain that when the financial
institution follow the risk management and also identify all the risks of
threats then try to mitigate these threats and also manage all the risks
related to the financial performance of the organization.
To develop a
sustainable future for the organizations, the financial performance of the
organization driven the resources of quality of the allocated resources for
intangible and tangible assets that also include enterprise risk management. The
basic need of measuring the financial performance is to measure the progress of
the organization to obtaining the corporate strategies. The past performance
evaluation also help to manage the current and future events of the financial
sector.
The
enterprise risk management framework provides better solution for the
management of the organization to manage the exposure of risk and to manage these
risks develops the risk management techniques. To obtain the objective and
strategic vision of the organization the enterprise risk management framework
is geared. Enterprise risk management develops a strong system to prevent the
destruction of shareholder wealth and also boosts the value of shareholders to
protect the asset for making the performance more sustainable. Contingency
approach is also utilize for develop a strong relationship between the
performance and enterprise risk management.
Value
at risk approach is utilized for the measurement of enterprise risk management
with the return of asset to determine the performance of the organization. There
are also five different variables that affect the performance of the
organization through enterprise risk management. These variables include
international diversity, institutional ownership, firm size, profitability and
leverage. The firm performance and enterprise risk management both has positive
relationship. The enterprise risk management affects the performance of the
organization for long term. The enterprise risk management also provides better
solution to handle the condition of the organization in different situations
and also manage all the risk that damages the performance of the organization.
Research aims, objectives, questions:
The main purpose behind these facts
is that the enterprise risk management plays a very important role in making
the financial performance of the organization better and also handles all the
risk related factors that affect the financial sector of the organization. Different
research studies conducted for the implementation of enterprise risk management
principles on the performance of the firm in long terms and it also examine
that how the market characteristics, assets and financial change focus on the
implementation of enterprise risk management within the organization. A
reduction in the stock price volatility also appears in the adoption of the ERM
within the organization. Effective communication is also very important for implementing
the enterprise risk management within the organization.
As we know that the concept of ERM is a
strategic approach that manages all the risks face by the business and also
help in enhancing the performance of the organization. In our discussion, we
are going to elaborate the basic need of the enterprise risk management and
also its impact on the performance of the organization related to its financial
sector. The financial sector not only includes the finance but also the assets
allocation and utilization of resources in effective manner.
The enterprise risk management also provides a
better methods and implementation of effective techniques for making the
performance of the organization and also provides organization a smooth way to
manage its all risks that affect its financial condition and also settle all the
problems that face by the organization. The organization need proper
methodologies and techniques for implementing the effective strategies for the
enterprise risk management also enhance the performance of the organization in
multi direction.
Enterprise risk
management is very important for implementing effective strategies and
methodologies for making the performance of the organization at high level and
also provide a clear framework to settle the issues of risk related to the
business transactions and also manage the problem of the organization related
to financial factors because financial sector is the major part of every
organization and it is very important to effective working of the financial
sector because without the effective performance of finance no any organization
move in the path of profitability and without effective method of financial
area no any business can manage its all transactions and operations because no
any organization can run without the involvement of finance.
Research questions:
1.
How the enterprise risk management influence the
financial performance of the organization?
2.
How much financial operations effect the overall
functions of the organization?
3.
Which
department effect highly due to poor financial performance?
4.
How much risks effect the financial performance
and how the operations of the organization need more improvement?
5.
How the enterprise risk management implemented
in the organization and what strategies
are utilize for better implementation?
6.
How to make the financial performance of the organization
make better by implementing the strategies of the effective enterprise risk
management?
Initial literature review:
The basic purpose is to develop the
enterprise risk management for the portfolio and historic view of the most
impacted risks for the objective of the enterprises and its related
achievements. The enterprise risk management provide a better way to develop a
enterprise view of top down related to all significant risks that effect the
business in better way. So enterprise risk management develops a place for all
type of risks that appear in the business operations and provide a better
solution for the viability of the business in both negative and positive
direction.
The board of
director also determines the risk for overseeing the identified risk by the ERM
process to ensure the management risk taking actions with the risk taking of
shareholders’ appetite and also approving and understanding the ERM process of
the management.
It is very important to understand
that ERM is an ongoing process that involve constantly evolve and emerge. Different
aspect of the project management also required by the initial launch of the ERM
process. With ongoing updates and improvement, when the management considers
that ERM process should be active and alive, the benefits of ERM also utilized.
There are many elements involve in the ERM process. Because it’s all elements
have its own importance and also ERM is a continuous process that monitors the
risk, give response, assess and identify all the risk factors according to core
model of the organization and manage all the issues related to the
organization. 
For strategic value,
the ERM obtain better information about all the risks that effect the
achievement of the organization and also its basic objectives. The process of
the ERM is start with the understanding drive value of the business and also
determine the strategic plans for the
business by handling these drivers. To the strategic success of the enterprise helps
is making the enterprises more innovative and more enhanced as there are many
of the different things that not only helps in making the workings more advance
and hence it makes to highlight more is deal things well managed and well
maintained as well.
Undertaking
hazard the board help to deal with the hazard identified with association and
give a superior answer for the association. Distinctive arrangement of
procedure help to settle the money related part to have the coordinated effect.
This procedure incorporate recognize explicit dangers confronting money related
foundation, connecting the endeavor chance administration system with the
recognizable dangers and foundation of big business hazard the board
methodology and a build and framework for the hazard the executives and build
up a domain of big business chance administration. The act of the ERM clarify
that when the budgetary establishment pursue the hazard the board and
furthermore distinguish every one of the dangers of dangers at that point attempt
to relieve these dangers and furthermore deal with every one of the dangers
identified with the money related execution of the association. To build up a
feasible future for the associations, the budgetary exhibitions of the
association driven the assets of nature of the apportioned assets for
impalpable and substantial resources that additionally incorporate venture
hazard the executives. The essential need of estimating the money related
execution is to quantify the advancement of the association to getting the
corporate techniques. The past exhibition assessment likewise help to deal with
the present and future occasions of the budgetary area.
Methodology:
Enterprise risk
management processes required a period o years that provide desired outcome
after implementing the strategies and also show the performance of the company
after enterprise risk management . different enterprise risk management system
implemented in the organization to determine the stabilization and value of
enterprise and also observe the financial results according to actual
requirement. From the internal resources and external environment, many
organizations consider the strategic and operational risk. Organizational unit
responsible for risk management and ERM system include in the board of
enterprise. It also provides information as risk control, risk measurement,
risk identification and also risk management methods at major level.
It
also allows all the employees to take part in the risk assessment process and
examine the organization with the ERM system at boarder level. It is time
consuming and expensive as to select the approach to increase the risk
information and also increase the awareness of risk between the internal
stakeholders. The effectiveness of the ERM system also explores with the
enterprise value to risk and also determine with its financial results. In
other words proper methodology for ERM system must be established within the
organization according to ERM framework. It include the key risk terms, role
and responsibilities with complete descriptions and for risk identification the
complete and clear process, its reporting, monitoring, mitigating, assessment
and measurement. It is very important for every organization to establish a
strong framework of ERM that help the organization to obtain a clear view of
all the risks that involve in the organization and also provide a clear way to handle
all the risk that occur in the organization. Effective implementation of ERM
system make the organization more strong and it have the ability to handle all
type of risk related to any part of organization and also determine quick
solution without any disturbance of operations.
Benefits:
ERM system is
essential of every organization because it have some benefits as it strengthens
the accountability that explain the level of risk associated with the
operations, programs, plans and policies and also obtain the interest of
stakeholders with the optimal balance level. It also improve the corporate
governance of the organization, it achieve the efficiencies of the
organization, it focus on new opportunities, it manage and identify the cross
enterprise risks and also deal with four different segments as financial and
hazard risks, operational and culture and strategies. It also increases the
response of risk with risk avoidance decisions, acceptance, sharing and
reduction. By aligning the risk appetite of the company with its strategy make
better decisions and also improve the planning at contingency level with
proactive approach. So these are the basic advantages that organization obtain
while handling the ERM framework and implement it within the organization to
get maximum advantages.
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risk management practice on the financial performance
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