european journal of social sciences issn: 1450-2267 - EuroJournals

European Journal of Social Sciences – Volume 5, Number 3 (2007)
No entity operates in a risk-free environment, and ERM does not create such an environment.
Rather, ERM enables management to operate more effectively in environments filled with risks. All
organizations can benefit from improved ERM procedures in meeting objectives related to strategic
direction, operations, reporting and compliance. ERM provides management with enhanced
capabilities to align risk appetite and strategy, link growth, risk and return, minimize operational
surprises and losses, identify and manage cross-enterprise risks and rationalize capital
(PricewaterhouseCoopers, 2006). Recently, there is an increasing attention for ERM implementations
in various industries. Many problems are appearing in air transportation sector since regarding issues
of ERM implementations are very limited in both quantity and context. This study is prepared to
answer this need.
As the dynamics of the market, business environment and changes in regulatory requirements
for corporations increase in their complexity, it becomes harder to plot the right course for continued
success. Being able to identify and adapt to changes are key success factors for the leaders of
tomorrow. In light of these events companies are driven more than ever by the desire to protect their
reputation and manage their risks effectively. ERM provides a framework for management to
effectively deal with uncertainty and associated risk and opportunity thereby enhancing management’s
capacity to build value. ERM does not operate in isolation in a corporation, but rather is an enabler of
the management process. ERM is a part of corporate governance by providing information to the Board
and to the Audit Committee on the most significant risks and how they are being managed. It
interrelates with performance management by providing risk-adjusted measures. ERM is an integral
part of internal control. Given the importance of ERM, the key objectives of this survey were to
identify (PriceWaterhouseCoopers, 2006):
1. Current focus areas in corporate risk management
2. Current and planned risk management related functions in the companies
3. Current and planned risk management processes at the enterprise level
4. Practical next steps to advance ERM within organizations
The organizations reported many benefits of managing risk. The benefits, overall, relate to
organizational objectives and the management process. The key benefit is the achievement of
organizational objectives. Other reported benefits are better focus on business priorities, strengthening
of the planning process and the means to help management identify opportunities. The reported
benefits to the management process include: a cultural change that supports open discussion about risks
and potentially damaging information; improved financial and operational management by ensuring
that risks are adequately considered in the decision-making process; and increased accountability of
management (KPMG, 1999).
No risk management process can create a risk-free environment. Rather ERM enables
management to operate more effectively in a business environment filled with fluctuating risks.
Enterprise risk management provides enhanced capability to (COSO, 2006):
_ Align risk appetite and strategy: Risk appetite is the degree of risk, on a broad-based level,
that a business is willing to accept in pursuit of its objectives. Management considers the business’s
risk appetite first in evaluating strategic alternatives, then in setting boundaries for downside risk.
_ Minimise operational surprises and losses: Businesses have enhanced capability to identify
potential risk events, assess risks and establish responses, thereby reducing the occurrence of
unpleasant surprises and associated costs or losses.
_ Enhance risk response decisions: ERM provides the rigour to identify and select among
alternative risk responses – risk removal, reduction, transfer or acceptance.
_ Resources: A clear understanding of the risks facing a business can enhance the effective
direction and use of management time and the business’s resources to manage risk.
_ Identify and manage cross-enterprise risks: Every business faces a myriad of risks affecting
different parts of the organisation. The benefits of enterprise risk management are only optimised when
an enterprise-wide approach is adopted, integrating the disparate approaches to risk management
64