US risk managers are backing the proposals contained...

US risk managers are backing the proposals contained in the Enterprise Risk Management (ERM) draft document completed by the committee of Sponsoring Organizations of the Treadway Commission, the Project Advisory Council to Committee of Sponsoring Organizations (COSO), and PricewaterhouseCoopers LLP. The Risk and Insurance Management Society, Inc (RIMS) says that the document provides the direction for the design and implementation of enterprise risk management in any organisation concerned with managing risk effectively.

COSO began the project in January 2001 with a goal of supplying organisations with information on how to identify, assess, build, and coordinate a risk management programme on an enterprise-wide basis. The programme comprises eight components of risk management, with an emphasis on the ability to use it in organisations of any size.

RIMS suggests that organisations give priority to the following:

  • Focus on process. Adopt a business process engineering approach.
  • Minimise complexity. Implement ERM using simplified models and metrics.
  • Distinguish between accountability, responsibility, and process. Develop models that clearly distinguish who is accountable and responsible for ERM and who owns the process of implementation..

  • Develop skill sets for financial, business and operating risks. Recognise that financial risks require skills that can be applied using well defined models and other quantitative methods. Operating and business risks demand different methods and processes.

  • View ERM in horizontal and vertical systems. A horizontal view covers operations from the product or service through creation, distribution, marketing, and servicing to the client or customer. A vertical view goes from the board of directors to the front-line employee or customer. Any process should incorporate both views.