Several elements are required of successful ERM systems. Take a look at this video on Enterprise Risk Management, which offers an overview of ERM.Section five details some requirements of successful ERMâs. Choose and summarize two of these elements. Could one of these be more important than another?
Ch. 10 offers examples of probabilistic modeling. How does scenario planning at DuPont offer an example of a company becoming outward looking in managing supply chain risk?
Sample Answer
Here’s a breakdown of the elements required for successful Enterprise Risk Management (ERM) systems, and how DuPont uses scenario planning:
Elements of Successful ERM Systems:
Based on my search, here are some key elements for successful ERM systems:
- Company Culture, Governance, and Values: A risk-aware culture, strong governance, and ethical values are crucial. Leadership must establish the tone and ensure that risk management is integrated into the organization’s operations. Appointing a Chief Risk Officer (CRO) can strengthen ERM.
Full Answer Section
- Strategic Planning, Objectives, and Goal Setting: ERM should align with the company’s strategic goals. Defining objectives, risk appetite, and risk thresholds are important steps.
- Risk Management Framework: A well-defined framework guides the ERM program. It should include setting the context for ERM.
- Risk Identification: Do not miss a single risk. Allow flexibility such that emerging risks can be readily incorporated.
- Risk Assessment: Use a formal, automated risk register to track key risk attributes, metrics (severity and likelihood), and assign risk owners.
- Risk Response: Determine how to respond to risks (avoid, accept, reduce, or share). Decisions are made based on the risk tolerance and risk appetite of the enterprise.
- Control Activities: Execute and monitor the risks and their related activities.
- Information and Communication: Employees need to understand what is being asked of them.
- Monitoring: ERM must be monitored at all levels to respond dynamically to changes.
- Integration: ERM processes should be integrated into all aspects of the business.
- Risk Appetite Management: The organization needs to understand and manage its risk appetite.
- Root Cause Analysis: Encourage and drive root cause analyses to understand the underlying causes of risks.
- Performance Management: ERM should contribute to managing and improving performance.
- Business Resiliency and Sustainability: ERM should help establish and maintain business resiliency and sustainability.
Could one of these be more important than another?
Yes, while all elements are important, company culture, governance, and values (Element 1) arguably form the foundation. Without a strong risk-aware culture and leadership commitment, the other elements are less likely to be effective.
DuPont and Scenario Planning for Supply Chain Risk:
DuPont utilizes scenario planning to manage supply chain risk. They’ve shifted their focus from supply logistics to demand-led fulfillment, creating integrated operations capabilities to improve performance and productivity while managing risks.
- Proactive Approach: DuPont uses a targeted risk assessment process and a supply chain incident monitoring platform powered by AI. This gives them visibility into key risk factors and allows them to make informed decisions to prevent disruptions.
- Supply Chain Cockpit: DuPont uses a digital platform that can produce multiple possible scenarios simultaneously, using a custom algorithm. The potential outcomes are based on inputs from global supply planners to cross-check supply chain readiness against customer needs, production line capacity, inventory, alternate sourcing plants and modes of transport, fulfillment capabilities, and financial implications including cost and revenue margin.
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