Enterprise Risk Management's Components

Enterprise risk management has 8 inter-related components, derived from the way company runs an enterprise & are integrated with the management process. These components are:

Internal Environment

The internal environment includes the atmosphere of an organization, & sets the fundamental for how risk is shown & called by an entity’s people, including risk management philosophy & risk appetite, integrity & honorable values, & the environment in which they function.

Objective Setting

Objectives must exist before management can recognize potential events affecting their achievement. Enterprise risk management assures that management has in place a process to set goal & that the selected objectives support & line up with the entity’s mission and are consistent with its risk appetite.

Event Identification

Internal & external events affecting achievement of an entity’s objectives must be recognized, distinguishing between risks & opportunities. Opportunities are channeled back to management’s strategy or objective-setting processes.

Risk Assessment

Risks are examined, considering likelihood & impact, as a basis for identifying how they should be dealt. Risks are assessed on an inherent & a residual basis.

Risk Response

Management chooses risk responses – avoiding, accepting, reducing, or sharing risk – creating a set of actions to align risks with the entity’s risk tolerances & risk appetite.

Control Activities

Policies & procedures are constituted & enforced to help ensure the risk reactions are effectively finished.

Information & Communication

Relevant data is linked up, caught, & communicated in a form & period of time that enable individuals to execute their duties. Effective communication also comes along in a wider sense, moving down, across, & up the entity.

Monitoring

The totality of enterprise risk management is supervised & changes made as necessary. supervising is carried out through on-going management activities, separate evaluations, or both.