An Exploratory Study of Enterprise Risk Management, Article Review Example

First of all, Sara A. Lundqvist, the author of this highly scholarly article, obviously understands the complexities and dimensions of Enterprise Risk Management (ERM) which can be defined as the ability of an organization to comprehend and manipulate the various levels of risk associated with a strategic plan in order to create and maintain organizational value, maximize profits, and satisfy the needs of organizational stakeholders. From a business perspective, Lundqvist stresses the idea that organizations must approach ERM from a holistic viewpoint, meaning that instead of focusing on individual components, an organization must focus upon the whole in relation to how the components function together and their inter-relationship to the overall business structure. This type of holistic approach is more commonly found in the fields of medicine and nursing, wherein diseases and disorders are seen as being inter-related to the body, the mind, and the emotional/psychological makeup of the patient.

In many ways in her article, Lundqvist plays the role of a consultant or adviser, due to the fact that her knowledge and expertise on ERM is extensive and all-encompassing. Thus, as a consultant, Lundqvist recommends in no uncertain terms that an organization must consider what she refers to as “four discrete underlying components or pillars” (2014, p. 395) related to the successful implementation of ERM, based in part on the advise of seven experts, one being K.A. Desender who created a set or list of pertinent questions in 2007 in order to “construct an aggregate measure of ERM” based on the 2004 COSO  ERM Framework (2014, p. 400). Two of these pillars are prerequisites or necessary components concerning the “general internal environment and control activities” of an organization. The third pillar helps to identify the risk management activities of a given organization, while the fourth pillar defines the attributes, such as the qualities and characteristics, that allow the successful implementation of ERM (2014, p. 395). Thus, taken as a whole, these four pillars serve as the foundation for a holistic approach to enterprise risk management. Interestingly, it appears that some organizations (29%) are already utilizing a pseudo-holistic approach to ERM, a situation which Lundqvist suggests may be a sign of uncertainty related to one or more ERM frameworks already in use in a given organization (2014, p. 396).

Lundqvist also explores the history of ERM via discussing a number of previous studies with the earliest dating back to 2003, being Liebenberg and Hoyt’s “The Determinants of Enterprise Risk Management” which is based upon the findings of chief risk officers or those who hold the responsibility within a business organization to identify and analyze interior and exterior threats to the organization’s well-being and profitability. However, Lundqvist points out that a firm or organization that employs such an individual (or perhaps more than one) does not necessarily indicate that the firm is utilizing a holistic approach to ERM, even though some of these experts have more than twenty years of experience (2014, p. 397).

In addition, Lundqvist describes other pertinent studies with the most recent dating from 2011. However, the bulk of these studies seem to contradict one another, especially related to measuring techniques, thus yielding inconclusive results. But due to Lundqvist’s scholarly nature, she provides a well-grounded solution–“There must be a consensus about what an ERM firm looks like” and what types of components it employs to determine risk management (2014, p. 400). This refers to a business firm that specializes in ERM and which of course practices a holistic approach to ERM via Lundqvist’s four pillars. The most efficient methodology according to Lundqvist for determining this consensus is through the application of a survey which allows the researcher to utilize exploratory factor analysis (EFA). These factors are then put to the test via a confirmatory factor analysis (CFA) which helps the researcher to “assess the most accurate components underlying” an organization’s current ERM practices. The final step involves expert weighting or allowing ERM experts to analyze all of the survey findings which hopefully will result in a consensus (2014, p. 405).

The greatest strength found in Lundqvist’s article is her inclusion of a number of important graphs and tables that illustrate and support her main thesis concerning a holistic approach to ERM. For example, Figure 1 provides a visual explanation on the four pillars of enterprise risk management with pillar three identifying nineteen separate entities, such as a formal written risk management philosophy, the inclusion of a CRO who oversees risk and risk management, and a “centralized department or staff dedicated to risk management” (2014, p. 413).

Overall, Lundqvist’s article is extremely complex and was obviously written with the expert in mind as opposed to an individual who wishes to learn more about enterprise risk management without having to mentally process a plethora of analytical observations, such as found in Appendix A “Survey Dimensions and Summary Statistics.” Perhaps this complexity serves as the sole weakness of the article, along with some terms that are left unexplained, such as Geomin Rotated Loadings. In essence, Lundqvist’s article would serve as an excellent starting point for an individual interested in deciphering how enterprise risk management aligns with logistics.

References

Lundqvist, S.A. (2014). An exploratory study of enterprise risk management: Pillars of ERM. Journal of Accounting, Auditing, and Finance (29) 3: 393-429.