3.6 Chapter Summary

Chapter 3 covers the essentials of risk management frameworks and processes, highlighting the importance of structured approaches to managing business risks for organizations of any size. It introduces two key risk management standards, ISO 31000:2018 and the COSO ERM Framework 2017. Both standards offer guidelines for establishing a risk management framework and processes that integrate with an organization’s overall objectives. ISO 31000:2018 defines risk as the effect of uncertainty on objectives and encompasses principles, frameworks, and processes to manage risks effectively. The COSO ERM Framework redefines risk management by linking it to strategy and performance, using a model with five components: governance and culture, strategy and objective setting, performance, review and revision, and information communication and reporting.

The chapter outlines the steps of the risk management process, starting with scanning the environment to identify potential risks, analyzing these risks, and then treating them through various strategies such as avoidance, modification, transfer, retention, or exploitation. Monitoring and review ensure the process remains dynamic and responsive to new risks. The chapter emphasizes the value of adopting recognized standards like ISO 31000:2018 and COSO ERM to ensure consistency, improve risk management practices, and enhance organizational resilience against potential threats.

OpenAI. (2024, May 29). ChatGPT. [Large language model]. https://chat.openai.com/chat

Prompt: Please take the chapter content in this document attached and summarize the key concepts into no more than two paragraphs. Reviewed by authors. 

• Enterprise-Wide Risk Management Process is an approach that allows an organization to manage all the risks that have potential upside and downside effects on the organization.
• Governance and Culture: oversight from the top down.
• Information, Communication, and Reporting: communicating the effect of ERM on the organization using information obtained from inside and outside of the organization.
• ISO 31000:2018. It is a generic risk management standard developed to address and manage risk in an organization of any size or complexity.
• Performance: risk assessment and risk responses to address risks that could adversely affect the organization’s performance.
• Review and Revision: Review the performance of ERM in the organization and make changes where necessary.
• Risk criteria are defined by ISO Guide 31073:2022 as ‘terms of reference against which the significance of a risk is evaluated.’
• Risk treatment involves strategies, controls and techniques that are implemented to respond to an organization’s risks.
• Risk treatment is the implementation of actions and techniques for responding to both hazard and speculative risks by avoiding risks, modifying risks, retaining risks or transferring risks.
• Standard is a document often prepared by a recognized authority that provides guidelines, nomenclature, activities, principles, requirements and a basis to ensure consistency in practices that an organization undertakes.
• Strategy and Objective Setting: activities related to related to risk appetite and performance.