Enterprise Risk Strategy Management Essay Research

Enterprise Risk Strategy
(Project Name)
Student Name
Walden University
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Table of Contents
TOC \o "1-3" \h \z \u Enterprise Risk Management PAGEREF _Toc54743745 \h 3
Enterprise Risk Management PAGEREF _Toc54743746 \h 3
Drivers of ERM PAGEREF _Toc54743747 \h 3
ERM Advantages and Limitation PAGEREF _Toc54743748 \h 4
ERM Methods PAGEREF _Toc54743749 \h 5
Organizational Structure and Governance PAGEREF _Toc54743750 \h 5
ERM Governance Structure PAGEREF _Toc54743751 \h 5
Important Role in Governing ERM PAGEREF _Toc54743752 \h 6
Lines of Defense Model PAGEREF _Toc54743753 \h 6
ERM and Risk Culture PAGEREF _Toc54743754 \h 7
Operating Environment PAGEREF _Toc54743755 \h 7
Internal Risk in Pepsi’s Refresh Program PAGEREF _Toc54743756 \h 7
Potential Impact of Internal and External Risks PAGEREF _Toc54743757 \h 8
Strategies for Responding Risks PAGEREF _Toc54743758 \h 8
Risk Environment PAGEREF _Toc54743759 \h 9
Influence of Pepsi’s Current Risk Attitude on Refresh Program PAGEREF _Toc54743760 \h 9
Role of ERM in Pepsi Refresh Program PAGEREF _Toc54743761 \h 10
Enterprise Risk Management Strategy Proposal PAGEREF _Toc54743762 \h 10
Comparison of ERM and TRM PAGEREF _Toc54743763 \h 10
Project Management, ERM, and TRM PAGEREF _Toc54743764 \h 11
Recommendation for Pepsi Refresh Program PAGEREF _Toc54743765 \h 11
Enterprise Risk Management
Enterprise Risk Management
Risk is the difference between expected and actual outcomes. Practically, the risk is considered as uncertainty in an activity or procedure (Quail, 2012). In response to risk, organizational leaders focus on identifying the consequences of risks in every project. Later on, the leaders make plans to boost the benefit of risk and minimize the destructive aspects (Holmquist, 2014). Hence, risk management's role is to protect the organization from bad aspects of risk and cater to the opportunity from it.
In association with the organizational view, leaders adopt an enterprise-wide approach to treat risk. This, the organizational approach is termed as Enterprise Risk Management or ERM. According to De Kluyver (2013), ERM is the process that widens up the risk reliability of an organization from one factor to all risk exposure areas. In general, ERM is a structured approach to screen, emphasize, and conquer organizational risk.
Altogether, ERM plays a significant role in outlining enterprise-wide areas that are prone to risk. Due to the practice of ERM, risk and opportunity are often used interchangeably. According to Lam (2014), every risk has an opportunity, and there is a risk in every opportunity. Therefore, the role of organizational leaders and risk managers is essential to separate risk from opportunity.
Drivers of ERM
Knowing that ERM is associated with a plan-based business strategy for risks, it is essential to indicate risk factors in the projects. According to Kline and Hutchins (2017), certain features of the project environment force the managers to believe that a particular risk would be experienced; this feature is defined as a risk driver. A risk driver's prominent role in identifying the risk in any project, action, or process.
Four fundamental risk drivers compel the organizational leaders for adapting the ERM approach. Namely governance, management, response, and monitor (Price, 2013). Briefly, risk governance allows the risk managers to identify associated risks followed by its management and response strategies. Later on, the response strategies are controlled and monitored as per their role in treating risk.
Conclusively, four fundamental drivers vigilantly compel organizations for adapting the ERM approach. These drivers also indicate that risks are dynamic and correlated with each other. Therefore, they are obliged to be treated; else, they can cause severe destruction.
Recognize risk, understand its impact, take steps to address, know your resources
ERM Advantages and Limitation
Ogutu, Bennett, and Olawoyin (2018) interpreted ERM as a new management discipline that assists the organizations. Risk recognition, understanding its impact, taking steps to address it, and knowing the right resources are some of ERM's key attributes. However, certain constraints limit the practical adaptation of the ERM approach.
The ERM approach's advantages are many, including reviewing the company's resources, the downside of risk, and the upside of risk (ERM Initiative Faculty, 2012; Chief Financial Officers Council 2016). For example, competitive advantage is enjoyed by Pepsi by taking the risk of raising business ideas and claiming to fund them. Similarly, companies of every size are exposed to tremendous risks; the ERM approach helps them create mitigation plans against the risk exposures.
Conversely, there are two limitations to the ERM approach. First, cost association and second is typical consideration at the top level. Generally, ERM adaptation is an elegant addition in business. Similarly, technical abilities may lead to a lack of understanding of each risk. It could cause inadequate strategies and adversely affect the organization. Therefore, small-sized firms rarely pursue to enroll in ERM and rely on traditional risk assessment measures.
ERM Methods
Companies are managing risks for years, but ERM has revolutionized their risk management methods. The traditional methods for managing risk include brainstorming, event information, and assessment techniques. Conversely, ERM has broadened up the methods from mere descriptions to analysis.
Accordingly, ERM methods to analyze through tools such as SWOT, risk questionnaires, and scenario analysis are advancing the risk control strategies. Moreover, the leaders can indicate a high tendency to separate risk from opportunity.
Based on the outlined efficacy of EMR methods, it is observed that new methods of ERM are supportive of implementing ERM. Additionally, the use of technology to reduce error also plays a pivotal role in implementing ERM.
Organizational Structure and Governance
ERM Governance Structure
A governance structure portrays the power of managing roles in an organization. A governance structure is also responsible for setting rules, procedures, and other informational guidance for governing bodies.
Correspondingly, ERM is composed of various measures that require control and resources. Thus, the role of a governance structure for ERM is fundamental to delineate governing roles in the enterprise
Precisely, ERM is stretched across the organization. Consequently, a strong governing structure for ERM will be effectual on the entire enterprise. Therefore it is essential to establish a robust governing structure for supporting ERM.
Important Role in Governing ERM
Some of the critical roles in governing ERM include facilitation, consideration, and control. Briefly, ERM required championing to operate smoothly. Without a robust governance structure, the development of expert strategy is not possible.
First, ERM governance is responsible for facilitating the risk assessment process. Thus, the governance emphasizes leveraging risk evaluation facilities such as technology, accessibility to data, and other resources (Thornton, 2009).
Second, ERM governance plays a fundamental role in consolidating the reports on risk evaluation. Practically, several pieces of evidence are collected and combined by the ERM Governance for solidifying risk reports.
Third, vigilant control is practiced by the ERM governance structure. It is because ERM governance is always busy in maintain and developing an ERM framework with utmost information sets. Based on the indicated responsibilities, governance structure play a different important role in governing ERM.
Lines of Defense Model
The three defense model lines are a risk governance framework aimed at splitting operational risk responsibilities into three divisions or lines. It influences the development of ERM by dividing the tasks, roles, and responsibilities among enrolled individuals.
Individuals in the first line are those who directly own and manage the outlined risk. These people are responsible for identifying risk, assessing it, and communicating it with members of associated departments.
Individuals in the second line are indirectly exposed to the risk. These people are responsible for overseeing the first line struggler and assisting them. For this, policies and risk tolerance are designed in the second division.
The third line of the defense comprises of internal auditors and managers. Individuals in this division assess and control the efficacy of strategies that are used to mitigate the risk.
ERM and Risk Culture
Risk culture in an organization denotes acceptable behaviors and attitudes taken by an organization to manage risk. According to Alanis Business Academy (2014), a risk culture plays the role of a glue that binds elements of risk management, organizational structure, shared values, goals, and reinforcement mechanism.
ERM drives it by triggering elements of risk management and organizational spectrum regarding the defined role of risk culture. Thus, ERM governance influences risk culture by modifying the decision-making process, operational paradigm, and assessment criteria.
Operating Environment
Internal Ri...