Enterprise Risk Management

Enterprise Risk Management
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ranking of Jetblue as one of the leading airlines was withdrawn.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
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.
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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