Enterprise Risk Management (Preview)

xv ii PREFACE The Nature of Risks Risks are uncertainties that can affect organizational performance and results, including the achievement of goals, strategies and objectives. Uncertainties are events that may occur, trends or conditions that may change, which can impact organizations positively or negatively. Uncertainties create opportunities and threats. They are often opposite sides of the same coin. Risk management involves a process to identify, analyze, and prioritize risks, develop responses to risks, and monitor and review results. Enterprise risk management can be defined as the integration of risk management using a systemic approach. The term “enterprise” refers to every type of organization. It means that risk management is applied strategically and holistically. The Importance of Risk Management Risks apply indiscriminately to every type of organization. Risks are also present in every management field. As such, risk management has many branches, which have traditio- nally centered on financial risks, accounting risks, insurable risks and legal risks. However, contemporary risk management recognizes that significant risks also exist in other management fields such as strategy, organizational design, operations management, marketing, etc. Inadequate risk management is a prevalent cause of organizational failure. Identifying and actively managing risks are business imperatives. When risk management is done proactively and systematically, organizational performance and results improve dramatically. Organizations that do not identify and manage their risks effectively have a limited chance of success. Such organizations inevitably fail in the long run. In the United States and Canada, Chief Executive Officers and Chief Financial Officers of publicly-traded companies must sign-off on annual reports that include information on risks and risk management practices. Organizations not subject to these requirements are often pressured by their stakeholders to adopt similar practices. Senior executives require that all managers identify and actively manage risks applicable to their responsibility areas, in accordance with directions and stakeholder expectations. Senior executives also rely on managers to help determine where excessive risks may otherwise be present for the organization as a whole, and to propose solutions for managing them. All managers are responsible and accountable for managing risks. A good understanding of risk management is essential for managers to succeed. Our Learning Solution Enterprise Risk Management developed by Noranda Education is the first textbook truly adapted for higher education in the field of integrated / enterprise risk management. Enterprise Risk Management outlines basic risk management concepts and methods. It also describes common areas of risk applicable to every organization, and outlines effective solutions for managing them. This textbook is extensively researched from academic and professional sources. It is consistent with the risk management guidance developed by the