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In: Finance

Explain what distinguishes enterprise risk management from more traditional approaches to risk managament?

Explain what distinguishes enterprise risk management from more traditional approaches to risk managament?

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Expert Solution

ENTERPRISE RISK MANAGEMENT

It refers to a risk management system which is a strategic, comprehensive and integrated system.

A company first and foremost frames a company's vision, mission and objectives in order setup a framework to their prospective future. The Enterprise risk management sets up goals to have global focus on management of company's risk. The following steps are followed in enterprise risk management.

1. Detection or identification if potential risks

2. Prioritizing the risk

3. Implementing the proper risk.

TRADITIONAL RISK MANAGEMENT

It referes to a risk management system where the risks are managed by various responsible departments. Traditional risk focuses on pure risk where the consequences may or may not be a loss.

DIFFERENCE BETWEEN ENTERPRISE MANAGEMENT RISK VS TRADITIONAL RISK MANAGEMENT.

1. Insurable Interest:

traditional risk management the Enterprise only looks for those things which are insurable whereas on enterprise risk management does not consider insurable and it goes way beyond those which cannot be insure.

2. Assessment:

In traditional risk management approach there is one dimensional approach where traditional risk management is focused more on severity of a given issue more than the loss caused. On the other hand Enterprise management approach is multidimensional where its asses risk upon impact and probability. It scrutinizes each and every bit of information to identify the risk impact and its probability.

3. Style of risk management

In traditional risk management the risk is managed one by one on individual basis where each department shall concentrate on their area of risk this approach maked the company even more risk prone. On the other hand the Enterprise risk management uses a variety of tool to understand the interdependencies and triggers of risk and the ultimate effects of those risks. Therefore this approach analyse material risk along with its effect.

4. Reactive Vs Proactive and continuous

The traditional risk management is reactive. The activities are at times borne out of a particular event of a management which is handled accross all the department right from executive to support staffs which makes it difficult. Too many cooks spoil the broth approach is followed here. On the other hand the Enterprise risk management is proactive and continuous. The proactive may be of two appraches which are preparing for the day's risk and identify the risk that have potencial possibility to affect the organization down the road.

5. The traditional risk management risk averse which means these types of organization doesnot prefer to take risks. On the other hand Enterprise risk management is a risk taking which takes a chance to grow and learn.


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