Operationalising Enterprise Risk Management (ERM) Effectiveness

Abstract

Studies on ERM effectiveness appear to suffer from the same catastrophic dilemma as that of organizational effectiveness. To the best of the author's knowledge, very little research has been done on the effectiveness of ERM in managing risks. Based on the guidance from the COSO (2004) framework and the existing literature coupled with the insights gathered from semi-structured interviews, the current article aims to demarcate a workable model, and, thereafter, an instrument to be operationalized in ERM effectiveness studies. The findings suggest that the COSO framework is still relevant for ERM and that to improve the robustness of the effectiveness instrument, a multidimensional approach is key. This paper suggests a multiple model approach comprising a process model, system resource model and outcome model for measuring ERM effectiveness. Additionally, the perspectives from various ERM stakeholders of the risk, including the risk function itself, such as from the internal audit and finance or other members of the management team, may enhance the assessment of the effectiveness of ERM in managing risks. It is hoped that the model and instrument developed in this paper will encourage more studies to be conducted on the effectiveness of ERM in particular. From the practical standpoint, with some modifications to the fit, the instrument can also be applied to evaluate the effectiveness of ERM implementation in the respective organisations.

Enterprise Risk Management Practices in Malaysian Small and Medium-Sized Enterprises: An Overview

“…Top management is necessary for effective risk management (Kaplan & Mikes, 2014). Effectiveness of ERM (Togok, 2016), risk management (Banasadegh, Riahi, & Davari, 2014;Cooper, Faseruk, & Khan, 2013;Maina, Mbabazize, & Kibachia, 2016;Ngundo, 2014), security risk management (Zafar et al, 2011), and risk management success (Agoi, 2013) are all directly correlated with top management support. Academic studies have indicated that one of the most important success factors for risk management is upper management support.…”

“…Most studies looked at how top management support directly affects the dependent variables (Ngundo, 2014;Ranong & Phuenngam, 2009). On the other hand, several studies looked at the direct or indirect effects of top management support on the variables being studied (Togok, 2016). The results of a study by Togok (2016) showed that organizational culture has an indirect impact on ERM effectiveness, but tone from the top also has a substantial direct impact.…”

Enterprise Risk Management Practices and Survival of Small and Medium Scale Enterprises in Nigeria

“…Structured questionnaires administered to the owners/managers of 400 SMEs selected in Lagos State were used to generate primary data for the study. Various sections of the questionnaire were adapted from the scales used by previous researchers (Sefiani, 2013;Togok, Isa & Zainuddin, 2014;Lekhanya, 2016 Copies of the questionnaires were administered by the researchers with supports from three research assistants. A total of 400 questionnaires were administered out of which 313 copies were collected and found useful for the study.…”

“…Furthermore, it helps to identify potential events capable of affecting the enterprise and manage them to ensure that they fall within ERM Framework by the Committee of Sponsoring Organisations of the Treadway Commission (COSO, 2004) is adopted by this study. Togok, Isa and Zainuddin (2014) in their study had engaged this framework to operationalise ERM effectiveness. The framework comprises of eight interrelated functions through which organisations can effectively manage their risks to facilitate survival.…”

“…Items relating to the practice of ERM were covered in section B. This section was adapted fromTogok, Isa and Zainuddin (2014) with a reliability value of 0.992. It contained 24 items developed from the eight components of the COSO ERM framework.…”