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Triangulating Risk Profile and Risk Assessment: A Case Study of Implementing Enterprise Risk Management System

Author

Listed:
  • Abol Jalilvand

    (The Quinlan School of Business, Loyola University Chicago, 16 E. Pearson, Chicago, IL 60611, USA)

  • Sidharth Moorthy

    (Morgan Stanley, Mumbai 400013, India)

Abstract

Establishing an enterprise risk management (ERM) system is widely viewed as providing firms with the tools and processes needed to build resilience and expertise, enabling them to manage the consequences of crises that have led to the collapse of major firms across different industries globally. Intended for use in advanced accounting, auditing, and finance courses, this case study (of a true event) describes the development and implementation of an ERM system for a U.S. multinational nonprofit firm during the 2015–2021 period. The case study’s main learning objectives are several-fold. First, couched within the recent economic environment, it informs students on some of the more important academic and applied research on corporate risk management. Second, students will learn to analyze the content of a questionnaire designed to capture the integrated effects of the firm’s risk culture, risk structure, risk governance, and control for establishing its risk profile. Third, they will learn to create and apply multi-dimensional risk indices to measure and prioritize the firm’s risk exposures. Finally, the last learning outcome focuses on strategies to triangulate the firm’s overall risk profile and risk prioritization results to construct mitigation strategies that build resilience and create value through risk diversification, information signaling, the exploitation of natural hedges, and enhancing the board’s governing efficiency. The nonprofit nature of the firm in this case study introduces no methodological or conceptual constraints or limitations in applying the proposed risk management methodologies to for-profit or publicly traded firms.

Suggested Citation

  • Abol Jalilvand & Sidharth Moorthy, 2023. "Triangulating Risk Profile and Risk Assessment: A Case Study of Implementing Enterprise Risk Management System," JRFM, MDPI, vol. 16(11), pages 1-17, November.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:11:p:473-:d:1273354
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    References listed on IDEAS

    as
    1. Brian W. Nocco & René M. Stulz, 2006. "Enterprise Risk Management: Theory and Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 8-20, September.
    2. Stephen A. Ross, 1977. "The Determination of Financial Structure: The Incentive-Signalling Approach," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 23-40, Spring.
    3. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. "Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
    4. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    5. Scott E. Harrington & Greg Niehaus & Kenneth J. Risko, 2002. "Enterprise Risk Management: The Case Of United Grain Growers," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(4), pages 71-81, January.
    6. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-922, September.
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