COSO Enterprise Risk Management

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Organisations face a wide range of risks in the fast-paced, constantly changing business environment of today, which can influence their operations, reputation, and financial performance. Businesses need to put in place a strong Enterprise Risk Management (ERM) framework to reduce these risks and guarantee long-term success. Since it offers a methodical methodology to identify, evaluate, and manage risks, the Committee of Sponsoring Organisations of the Treadway Commission (COSO) ERM framework is commonly recognised as the industry standard for ERM.

Early History: The Framework for COSO (1992) 

The late 1980s savings and loan crisis prompted the initial introduction of the COSO framework in 1992. The framework, which concentrated on five elements, offered instructions for internal controls:

· Environment of Control; 

· Monitoring; 

· Information and Communication; 

· Control Activities; 

· Risk Assessment. 

Despite not being created with ERM in mind, the COSO framework served as a basis for the creation of the COSO ERM framework.

COSO ERM's Inception (2004) 

The Enterprise Risk Management - Integrated Framework, which expanded on the original COSO framework, was published by COSO in 2004. Eight components were introduced by COSO ERM:

· Internal Environment; 

· Objective Setting; 

· Identification of Events; 

· Risk Assessment; 

· Risk Reaction; 

· Control Activities;

· Communication and Information; 

· Monitoring.

The significance of recognising, evaluating, and addressing risks throughout an organisation was underlined by COSO ERM. 

COSO ERM: Updates and Improvements (2017) 

The ERM framework was updated by COSO in 2017 and kept the essential elements while undergoing major modifications.

· Performance; 

· Strategy, Risk, and Goal setting; 

· Information, Communication, and Reporting; 

· Risk Governance and Culture

Risk governance, culture, and the incorporation of ERM into organisational strategy were given more weight in the revised framework.

The COSO ERM was created to assist businesses in strategically and proactively managing risk. It is composed of five interconnected parts:
• Internal Environment: This includes the culture, values, and risk management philosophy of the company. It sets the tone for risk management and influences the organisation's risk-taking behaviour. 

• Objective Setting: This entails defining precise and succinct risk management goals that complement the organisation's overarching plan and objectives.
• Event Identification: This entails locating and evaluating possible hazards that might affect the goals of the organisation.
• Risk assessment: This entails determining the possibility and possible consequences of hazards that have been recognised.
• Risk Response: To reduce or manage hazards that have been recognised, risk response entails choosing and putting into practice risk management techniques.  

An organisation can gain a lot from implementing COSO ERM, including:
 

• Improved Risk Management: COSO ERM provides a structured approach to identifying, assessing, and managing risks, enabling organisations to respond to risks in a proactive and effective manner.
• Enhanced Decision-Making: By providing a comprehensive view of risks and opportunities, COSO ERM enables organisations to make informed decisions that balance risk and reward.
• Improved Compliance: COSO ERM can help organisations to comply with regulatory requirements and industry standards by providing a framework for managing risk and improving governance.
• Increased Efficiency: By streamlining risk management processes and eliminating duplication of effort, COSO ERM can help organisations to reduce costs and improve efficiency.
• Better Risk Culture: COSO ERM promotes a risk-aware culture within an organisation, encouraging employees to identify and report risks, and to take ownership of  risk management.
• Increased Stakeholder Confidence: Implementing COSO ERM demonstrates an organisation's commitment to managing risk and improving governance, which can enhance stakeholder confidence and reputation.
• Better Resource Allocation: COSO ERM helps organisations to allocate resources more effectively by identifying areas where risk management efforts should be focused.