Management teams must identify, assess, and manage risk. Risk management is a method used in most organizations to prevent and mitigate losses, while improving organizational performance. A variety of tools are available to assist with the measurement of enterprise risk. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) has played a major role in assisting companies with the management of risk. COSO is a U.S. private sector initiative, formed in 1985, whose goal is to identify the different factors that lead to fraudulent activities such as fraudulent financial reporting and make recommendations to reduce these incidences. COSO established various internal controls and criteria that organizations can use to assess their control systems in an effort to manage risk. “In 2001, COSO initiated a project, and engaged PricewaterhouseCoopers, to develop a framework that would be readily usable by management to evaluate and improve their organizations’ enterprise risk management” (COSO Executive Summary, 2004). Many companies and businesses have implemented enterprise risk management (ERM) techniques within their organization using the recommendations of risk management of COSO. This paper will outline a plan to implement enterprise risk management.
“The underlying premise of enterprise risk management is that every entity exists to provide value for its stakeholders. All entities face uncertainty and the challenge for management is to determine how much uncertainty to accept as it strives to grow stakeholder value” (COSO Executive Summary, 2004). Because no form of risk can be avoided within an organization, the organization must determine how much risk it is prepared to accept as it strives to create value. The proper managing of risk will enable a balance between acceptable risk and value creation which is essential for an organization remain successful. “Enterprise risk management enables management to effectively deal with...