Enterprise Risk Management in Construction Companies: Recent Trend
Traditionally, risk management is segmented and conducted in separate business units or departments (i.e. silos) within a company. Under silo-based risk management, silos deal with their own risks, and none single group or person in the company has a grasp of the entire exposure that the company faces. Ðis is attributed to the way people think about solving problems, the existing organizational structure, and the evolution of risk management practice. In addition, this is due to the fact that each silo within a company possesses the best expertise to address the risks within its area of responsibility.
In recent years, a paradigm shiÑ– has occurred in the way companies view risk management, and the trend has moved towards a holistic view of risk management. As the fundamental paradigm in this trend, enterprise risk management (ERM) has attracted much worldwide attention. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defined ERM as “a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives”. ERM agrees with the modern portfolio theory, which states that it is possible to build a portfolio that is reasonably safe even though it contains a number of uncorrelated or negatively correlated high-risk investments.
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