Running head: ENTERPRISE RISK MANAGEMENT
Enterprise Risk Management
Shurell Y. Davis
University of Phoenix
Enterprise Risk Management
Committee of Sponsoring Organizations of the Treadway Commission (COSO) is a small organization which provides enterprise risk management (ERM) expertise assisting organizations in developing risk management plans. Business risks are important in the success or failure of an organization. “To begin, business risks, of course, are uncertainties that can impinge on a company’s ability to achieve its objectives and can result in many interdependent outcomes—some negative, some positive” (Sobel & Reding, 2004, p. 1). Enterprise risk management (ERM) requires an organization to focus on managing their risks throughout the organization. An organization focusing on managing their risks one at a time is not an enterprise risk management. According to Nocco & Stultz (2006), “we argue that firms that succeed at ERM have a long-run competitive advantage over those that manage and monitor risks individually” (Nocco & Stultz, 2006, p. 3). However, an organization has the choice to manage risks across the enterprise or one risk at a time.
A corporation that chooses to manage risks can do so in two fundamentally different ways: it can manage one risk at a time, or it can manage all of its risks holistically. The latter approach is often called enterprise risk management (ERM). (Nocco & Stultz, 2006, p. 3)
Oregon Department of Transportation (ODOT) follows a systematic approach in managing risks within the organization. A systematic approach to managing enterprise risks allows ODOT to implement an effective ERM plan to help achieve the organization’s goals.
Our argument is that, by measuring and managing its risks systematically and consistently and by aligning the incentives of employees to optimize the tradeoff between risk and return, a firm increases sharply the odds that it will be able to achieve its...