Measuring Enterprise Risk Management, State of Business Magazine, Spring 2005

State of Business Magazine, Fall 2005, Risk Management

vol. XVII no. 3

Measuring Enterprise Risk Management
Page 3 Page 1 2 3 4

"This framework provides companies with a principles-based 'road map' that will enable them to identify, measure, prioritize and respond to all risks and thereby help them implement a successful ERM program."

According to many in the accounting profession, COSO's framework is poised to be the de facto standard of ERM. However, that too is up for debate.

" The new COSO framework is a pretty good document because it defines a framework to analyze different types of risk," said Shaun Wang, professor and director of Robinson's Actuarial Sciences Program. " However, it isn't the ultimate answer because it doesn't address fundamental management issues. It's more about the external than the internal, but it can achieve some benefits in getting companies started."

Others take it a step further and say that ERM is still a work in progress.

"There are still big chunks of managing risk in a company that doesn't lend itself to quantifiable models that prevent our achieving true ERM," said Skipper. "We will have achieved ultimate ERM, the 'holy grail,' if we can develop one measurement or set of measurements that represents a company's total risk. Not an easy task."

But while Wang agrees that finding one single measurement would be the ideal, he recognizes that it may not be possible. Since he sees ERM as fundamental to managing the business, Wang believes that it's time to move forward.

" Quantification has limitations. There are things that we can absolutely quantify, but there are other things such as brand name and customer services that are more difficult to quantify," he said. " It's time to move beyond traditional risk measures so that we can combine the risk modeling side with the managerial side."

Yet another challenge to ERM is changing the corporate culture from the more traditional "silo" approach that many of the larger established companies employ to one that is more "holistic."

According to a recent survey conducted jointly by Deloitte & Touche and the Economist Intelligence Unit, 60 percent of the senior risk managers they spoke with said that changing the culture was the greatest challenge to implementing ERM.

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