In order to succeed at the position, a CEO must have great social skills, possess the ability to be an effective leader and not shy away from making big decisions. The specific job duties that are required from a CEO will vary depending on what type of organization they happen to be the leader of, as there could be a wide range of job responsibilities that may differ from one another. A CEO shoulders the large burden of having the majority of accountability when it comes to the success or failure of an organization, as one major decision can often take a large toll on a company whether it is good or bad.
Although ERM has yet to be widely accepted as an industry standard since there are various definitions as to what ERM exactly is, more recognition and acceptance of ERM has been shown. There are seminars dedicated to ERM explaining the process and providing examples of applications while also discussing advances in the field.
Some universities are even starting to offer courses regarding ERM and the process. Definitions of ERM[ edit ] A definition provided by the committee of Sponsoring Organization of the Treadway Commission COSO in defines ERM as a process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be with its appetite, to provide reasonable assurance regarding the achievement of entity objectives.
Companies that adopt an ERM approach have seen improvements in areas requiring key management decisions from capitol allocations to product development and pricing to mergers and acquisitions.
Furthermore, he implements reports and risk indicators to communicate the risk culture throughout the firm. These reports assist the CRO in creating a risk profile.
He is communicating the firms risk profile to the key stakeholders such as the CEO, the board of directors and business partners. The optimizing of the risk portfolio is another assigned task by the ERM.
He advises for firm projects from a risk management point of view and uses regulations and risk transfer strategies in order to mitigate the risk. An ERM requires an integrated risk organization what normally means, that a centralized risk management unit has to report to the CEO and the board of directors.
The Chief risk officer in an ERM is responsible for knowing and gathering information over all the different aspects within an organization. He takes a portfolio view of all types of risks within the company.
In an ERM approach the use of insurance and alternative risk transfer products is only considered if the risk seemed undesirable or unwanted to the management. Integration of risk management in the whole company's business process becomes necessary.
The ERM optimizes business performance by influencing different aspects like pricing and resource allocation. Due to the fact that a CRO and an integrated team can better manage individual risks and interdependencies between these risks, the use of an ERM leads to an increased organizational effectiveness.
Apart from this fact, a better risk reporting can be reached by prioritizing the content of risk reporting that should go to the different instances like the senior management or the board of directors.
A side effect of this information prioritizing is a much better transparency throughout the whole organization. Last but not least you can also reach a better overall business performance in the company.
This is only possible if the risk management team uses an ERM approach and supports key management decisions like pricing, product development or Mergers and Acquisition. Given the support, there will be several benefits like increased earnings and improved shareholder value.
An ERM can combine and integrate several risk silos into a firm-wide risk portfolio and can consider aspects as volatility and correlation of all risk exposures.
This can lead to a maximization of the diversification's benefits. Under a Silo approach, risk transfer strategies are executed under a transactional or individual risk level.
As an example insurance can be mentioned, which transfers out operational risk. Risk assessment and quantification processes are not integrated. Value-at-risk models are used to quantify the market risk and credit default models are used to estimate credit risk.
Both specific models could be used independently, still: There are different effects that can be caused by this less integrative model: Over-hedging and far too much insurance cover can be a result of not incorporating all the different kinds of risk and their wide diversification.
Another characteristic of the Silo approach is the continuous fighting of one crisis after another without having an integrative concept or a specific individual that can be held responsible. No one specifically takes responsibility for aspects like the overall risk reporting or other risk-related unit supplies.
Further more there is another aspect that shows a weakness of this model: Having different organizational units to address every specific risk that then first has to be segmented in the company definitely speaks for a less effective technique.
In the Silo approach the different business units use various methodologies to track counterparty risks. This can become a problem, if you look at the total counterparty exposure: After a near miss or an actual crisis managers are often alarmed and focus more on all aspect of risk during the ongoing inspection.
They are looking at aspects like the compliance risk and they are reinforcing important roles for the board.
All these actions often lead to the naming of a risk champion who is then responsible for developing and establishing an ERM approach. In many companies the risk champion is becoming more and more a formal senior management position:Leadership Team Our unique leadership development approach is distinctly P&G.
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