Enterprise Risk Management

Enterprise Risk Management has been defined in a numerous amounts of ways. The CAS (Casualty Actuary Society) defines ERM as "…the discipline by which an organization in any industry assesses, controls, exploits, finances, and monitors risks from all sources for the purpose of increasing the organization's short- and long-term value to its stakeholders." (Enterprise Risk Management Committee (May 2003). "Overview of Enterprise Risk Management" (PDF). p.8 Casualty Actuarial Society. By way of Wikipedia.org). However, for a person just hearing of the term, this definition can seem quite wordy and over the top. To me ERM is basically the process of companies discovering and analyzing company risks to ensure that future company actions are safe and profitable. In essences, companies are creating subset risk management groups to take into account all of the major risks that their company face and find ways to offset those risks. For example, UGG (United Grain Growers) of Canada implemented ERM in order to gain the main benefit, being able to "...make better decisions as a result of having a better understanding of the firm's risk." (Risk Management & Insurance. Harrington and Niehaus, p.592). Because of their decision to do ERM, UGG was able to recognize it's top 47 risks, take their top 6, fit a distribution to their data, and discover their main source of unmanaged risk (which happened to be weather). From this, they were able to go the next step, which is deciding which risk management procedure to choose.

In all of that, it's safe to say that ERM is critical aspect to all companies. Those who are slacking in this area or slow to even step up to the plate to begin this process are in a spot to be left behind and exposed to many risks. This subject is so important that even the SOA (Society of Actuaries) have created a new credential for this study. (The new title is CERA, Chartered Enterprise Risk Analyst. For those who want to know the requirements of this credential, visit http://www.soa.org/education/exam-req/edu-cera-req.aspx). Overall, ERM is proving to be an arena of study that will be quite beneficial to all companies.