Page 82 - RISK Management IC86 Ebook

Risk Management

Limitations of ERM

n Judgment Human judgment can falter under the pressures of
time and information constraints.

n Breakdowns-Mistakes and errors can result from fatigue,
distractions, or lack of training and experience.

n Collusion- Two or more individuals may collude to circumvent
controls, conceal activity or alter data.

n Cost versus Benefit-The benefit of a risk concern must be
weighed against resource constraints. Valuation of costs and
benefits may be directly measurable or may be subjective
assessments. For example the cost of a training program to
assess creditworthiness is quantifiable, whereas customer
response to cumbersome qualification procedures is not.

n Management Override-Management override suspends
prescribed controls for illegitimate purposes. Whereas
management intervention may be necessary for processing
exceptional transactions, management override misuses
authority for proscribed activities,

ERM impact on management practices

n Enterprise Risk Management standards must accommodate
a range of company environments from small to large,
decentralized to hierarchical, and informal to formal lines of
authority.

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