Enterprise Risk Management ( ERM )

Abstract Enterprise risk management (ERM) is a recent risk‐management technique for managing a portfolio of risks in a holistic manner. ERM has evoked interest from corporate executives, regulators, and rating agencies, among others. Under the ERM framework, corporations take on risks necessary to pursue their strategic objectives, consistent with their “risk appetite”. The core of the ERM process is efficient risk integration, in which interrelations among risks and risk prioritization are highlighted. Certain risk measures, aggregation methods, or other mathematical modeling approaches are usually involved in its implementation. Effective risk reporting and communications in a well‐designed organizational structure are also essential for the success of ERM. The ultimate goal of ERM is to move beyond the initial incentive of fulfilling a compliance need to achieve real economic value.