QUESTION

Enterprise risk management (ERM) has grown in significance since the mid-1990s to become a key resource in the conceptualization and design of risk management systems. We argue that this emphasis is misplaced and contributes to the problem of a divide between analysis and action. ERM may be relevant for regulators and others in need of proof of good governance, but its formulations have become progressively detached from the reality of modern financial organizations.

Required:

a.Illustrate how an ERM approach can result in reduced earnings volatility for an organization.

b.Classify how an ERM approach will improve an organization's acceptance by internal and external stakeholders.