Reflections and Learnings: ShoreCap Exchange's Risk Management Forum December 2004

This paper presents ShoreCap Exchange's key learnings on Enterprise Risk Management System (ERMS), along with practical tools.

The learnings that the paper discusses include:

• ERMS helps a bank or a microfinance institution (MFI) to:
  • Cope with uncertainty and opportunity;
  • Enhance capacity to build value.
• Organization seeks a balance between profitability and risk, both on the same continuum;
• ERMS should support strategic objectives, instill investor confidence and ensure that evolution of organization infrastructure keeps pace with asset growth;
• ERMS structure should evolve with organization growth or complexity;
• The Board establishes the risk culture relying on business unit owners, CEO, senior management team and the internal audit;
• On an interim basis, the management should lead the risk management initiative;
• Ownership and accountability are integral in establishing a strong risk management culture;
• The first step in risk management is risk identification and opportunity definition;
• The second step is the analysis of the identified risks and definition of consequences.

The tools and checklists presented include:

• Definitions, examples and measurement options for risks;
• Checklist to assess the degree of alignment between organization growth and ERMS structure;
• An optimal ERMS structure;
• Checklist to assess involvement of the Board and Chief Executive Officers (CEOs);
• Checklist to assess cultural alignment of key managers with ERMS benefits;
• Risk identification and assessment tools:
  • Self-assessment;
  • Process mapping;
  • Risk indicators;
  • Quantitative measurement tools.
• Risk response grid.