Enterprise risk management issues

Document Type:Article

Subject Area:Management

Document 1

Establishment of a process of managing risks for any entity entails some common pitfalls, which include insufficiency in linking the risk management to the setting of strategy. In many ways, the definition of risk management of enterprises is quite an enigma. If you ask about twenty chief executive officers to define it, they might give you twenty different answers (Chen et al, 2009). Although definition of risk management is not of equal importance, it is a very significant step in the reflection on why many implementations of risk management organizations fail. In this paper, I will discuss the common pitfalls that risk management organizations face especially in the implementation phase and how to deal with them. The process is in for a great failure.

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For this pitfall to be dealt with, the only effective thing to do is to have a proper governance. The management should be actively involved in seeing that every part of the implementation process is up to date. Reports have shown that if the management or the governance is okay, then the chances of any project that is under them succeeding is high (Christoffersen, 2011). The organization should ensure that the personnel in the managerial positions is active, honest and committed. When a risk is considered as an afterthought after the strategies have been formulated, the objectives set by the strategy might come to be unrealistic and the management of risks may just become an appendage to management of performance. The implications of such a failure include having a strategy which is too complex for the organization to deliver, inability to adjust to the changing business world and even losing the enterprise value which has taken the organization many years to establish, or even going low in the position of competition.

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The potential markers of such a failure include weak or lack of alignment of the risk responses to the management of enterprise and strategy performance (Zwikael & Ahn, 2011). It will also be shown by lack of connection between the risk management and the main processes of management and there will be no efforts made to anticipate the risk scenarios which could in one way or another derail the strategy’s execution. In order to deal with this pitfall, it is important to ensure that in the implementation phase, the strategy setting, goal setting and the risk management processes are going together. Therefore, the environment or the culture should be taken seriously if one wants to achieve success in the risk management. If the organization is grounded on a culture that pays attention to details and asks questions concerning some uncertainties, it is likely that if a new risk is emerging, it will be detected and dealt with at the right time (Zwikael & Ahn, 2011).

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Failure to involve the board or the management in the due time is another pitfall. When the board is not timely informed and involved on matters that relate to risk appetite and risks that are inherent within the corporate business plan and strategy, a vital check is lacking and there is thwarting of the final line of defense to the reputation of the management (Arena et al, 2010). The main signals that are shown when such issues are present include having the boar only involved in occasional management of risks, having the board being informed by the management after the fact following undertaking of significant risks, and also having the risk profile of the organization rarely talked about at the level of the organization’s board.

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Therefore, this failure to completely identify the risks exposes an organization to great failure. In conclusion, therefore, the above are areas of focus when a risk management process is in implementation phase. The insurers, the board, and the executive management should check on such pitfalls if they want to retain viability and health of their organization towards approaching a successful risk management approach. The results that follow a long term of failure could inhibit the efforts of elevating the risk management to the level of strategy, and this may mean that it remains stagnant at the level of implementation. If the stagnation happens, it leaves the risk management in compliance, process and hazard risks, which are way below the radar of strategic risks, and this can result in making or breaking the success of the company.

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