Enterprise Risk Management

Running head: ENTERPRISE RISK MANAGEMENT 1

Name

Institution

ENTERPRISE RISK MANAGEMENT 2

Enterprise Risk Management

According to the passage, four reasons drive the need for having an Enterprise Risk

Management. First, an ERM is needed for survival (D’Arcy & Brogan, 2014). In this case,

various organizations try to put measures in place so that in case an anticipated risk occurs, the

particular agencies do not close down. Secondly, an ERM is required for stability whereby

organizations make sure that they continue to enjoy their usual level of operation even in times

of undesirable events. The third reason for having an ERM is so that firms can achieve fiduciary

responsibility. The ERM assists the board as well as the CEO to meet employee, shareholder,

social, community, and ethical obligations. Lastly, ERM plays a central role in ethics. Through

the use of ERM, individuals can build good relationships with other parties.

One of the reasons that could have pushed Jetblue to evaluate how they deal with risk is

the need for survival. From the case study, the survival of the company was threatened. It is

stated that the airline canceled one thousand flights and needed about six days to clear the

backlog. The operations of the airline stalled which should not have been the case. If a proper

ERM had been put in place, the airline would have resumed its activities within a short time. The

losses that were incurred during the process could have been avoided. The second reason that

Jetblue ought to have considered is stability. Even after resuming operations, Jetblue did not

enjoy its operational status as it had done before. As stated in the case study, the previous

ranking of Jetblue as one of the leading airlines was withdrawn. The negative publicity

influenced many clients to abandon its services. The bad publicity, as well as the low number of

customers, threatened the stability of the firm.

In the case of GM, there are several reasons that the company should have considered

regarding the implementation of an ERM. Just like in the Jetblue case, GM ought to have

ENTERPRISE RISK MANAGEMENT 3

realized the need to survive. The company previously had speculated that it was headed for a

massive financial crisis. The mitigations taken included laying off some of its workers. The

damage had already been done and what was needed was a way of sourcing for funds to boost its

operations. However, the managers of the company waited until the company became bankrupt

for them to act. The services had to stall until the company was bailed out. The second reason is

the need for stability. All the factors described in the case study were threatening the well-being

of the company while GM waited until it was too late for them to act.

Markedly, ERM has contributed seven factors that have resulted in better management of

risk. The first contribution is recognition of the upside of risk (Nocco & Stulz, 2016). When

organizations come up with mitigation strategies to avoid a particular risk, people may start

doing other things which may instead have a positive impact on the organization. The second

contribution is to delegate a risk owner for each category of risk. It is so that people can be

accountable for any mishap that happens. The third is aligning risk accountability so that specific

people can explain the occurrence of particular undesirable events. The fourth is creating a

central risk function to facilitate the efforts of risk owners to manage risks. The fifth contribution

is the installation of high-tech electronic platforms which are tools that help understand the risks.

The sixth contribution is involving the board of directors who implement various decisions. The

last input of ERM is the employment of a standard risk evaluation process which encourages the

use of a practical method of evaluation to assess the risk.

ENTERPRISE RISK MANAGEMENT 4

References

D’Arcy, S. P., & Brogan, J. C. (2014). Enterprise risk management. Journal of Risk Management

of Korea, 12(1), 207-228.

Nocco, B. W., & Stulz, R. M. (2016). Enterprise risk management: Theory and practice. Journal

of Applied Corporate Finance, 18(4), 8-20.

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