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OIRM-7-enterprise-risk-management-theory-and-practice.html
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<!doctype html>
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<head>
<meta charset="utf-8">
<title>Operational and Integrated Risk Management | Chapter 7 | Enterprise Risk Management: Theory and Practice</title>
<meta name="description" content="Financial Risk Manager Part 2 Study Materials">
<meta name="author" content="MacLane Wilkison">
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<section>
<h1>Chapter 7</h1>
<h3>Enterprise Risk Management: Theory and Practice</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">Alchemists Academy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Introduction</h2>
<p><em>Definition: A risk management approach that views all risks together within a coordinated and strategic framework</em></p>
</section>
<section>
<h2>ERM and Shareholder Value</h2>
<ul>
<li>Macro benefits</li>
<ul>
<li>Limits probability that cash shortfalls will lead to value-destroying investment cuts</li>
<li>Reduces exposure to non-core risks</li>
</ul>
<li>Micro benefits</li>
<ul>
<li>Forces business managers to consider impact of all material risks in investment and operatin decisions</li>
</ul>
</ul>
</section>
<section>
<h2>Determining Appropriate Risk Levels</h2>
<ul>
<li>Tradeoff between active risk management and size of cash and equity buffer</li>
<li>Target credit ratings may inform decision</li>
</ul>
</section>
<section>
<h2>ERM Conceptual Framework</h2>
<ol>
<li>Management determines risk appetite</li>
<li>Management estimates the amount of capital required to support target risk level</li>
<li>Management determines optimal combination of capital and risk expected to yield target rating</li>
<li>Management decentralizes risk-capital tradeoff using capital allocation and performance evaluation systems</li>
</ol>
</section>
<section>
<h2>Implementation Challenges</h2>
<ol>
<li>Identification and quantification of risks</li>
<li>Distinguishing between economic value and accounting performance</li>
<li>Risk aggregation</li>
<li>Risk measurement</li>
<li>Distinguishing between regulatory and economic capital</li>
</ol>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
</section>
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