Page 24 - Risk Management in current scenario

Enterprise Risk Management

(ERM)

This article describe how ERM helps in providing good ramework
of capital allocation, optimizing the return and manage projects
within the Company in a given the risk and return objectives.

History

Historically, in the life insurance risk management sphere, reinsurance has
been used as a tool to manage the mortality/morbidity risks. As a part
of financial risk management in early 1970s, financial derivatives were
developed by investment banks to manage the risk of exchange rate
movement, commodity price, and interest rate and stock prices. As a part
of general management, contingency planning and business continuity
planning were used to be part of risk management. This has now been
topped up with corporate governance to give the shape of enterprise risk
management.

Development of ERM
However, it was realized that fragmented approach to risk management
does not work as the risks are highly interdependent and cannot be
segmented and managed independently, there is also a higher cost of
management of risk if handled independently as the benefit of
diversification does not come into force. Other advantage of ERM is the
integration of risk management across the organization helping them in
getting the overall view of risks within the organization.

What is ERM?

There is a no standard definition of ERM, however it must cover the key

22 | Risk Management in Current Scenario