These developments involving the two most

important regulatory bodies in the Philippines only

underscore the premium attention now being given
across the broad business spectrum in the country
insofar as ERM is concerned.

It also signaled the fact that the understanding of

ERM continues to grow deeper and the practice of risk
management becomes even more widespread. To cite a
few in the Philippine business scenario, the different
industries have adopted ERM with the following general
features:
The Banking Industry
Most leading local banks now have in place
comprehensive and integrated Risk and Capital management
framework which serve as a guide for management for all risk
exposures. This ensures that the bank has adequate capital to
cover and mitigate identified risks. This framework follows the
Bangko Central ng Pilipinas regulations to implement an active
and effective Internal Capital Adequacy Assessment Process
(ICAAP) and risk management process with the bank.
The Telecommunication Industry
Leading telecom companies in the Philippines
recognized that effective risk management practices are
crucial to sustaining profitability and resiliency. Most ensure
that risk management remains a core capability and an
integral part of how decisions are made to deliver value to
the shareholders. ERM helped in achieving the companies'
business objective which can be a wide array of risk
factors. Some of these risk factors are generic while some
are unique to the telecommunications industry.
  The Shipping Industry
Board of Directors and Management of leading
companies in this industry consider risk management as a
central and integral part of the organization's strategic
management. Risk management to them is a culture,
processes and structures that are directed towards realizing
potential opportunities and managing adverse effects. Most put
in place ERM Policy and Procedures Manual to make all
employees aware that risk management is the responsibility of
all employees in the organization. This also provides a
systematic approach to the early identification and
management of risk

The above is but a few of the examples of how ERM is

embedded in the organization's matrix in the different industries as
cited. This is by no means, however, limiting the ERM practice which
as noted is globally observed.
 Theories vis-à- vis
Applications
The co-authors of this book have distinguished themselves in going
the extra mile to link theories, concepts and principles with real-life
situation on the ground. They have endeavored to make every page of
the book they have written relevant by citing actual examples culled
from the many years of experience in the corporate world.

Students, therefore, are now exposed to a more realistic learning

curve as they are able to relate these theories and principles to actual
ground situation. In essence, it is a "reality clinic" where one is treated
not just how to think but moreover, on how to do things in actual
situations.

This set apart this book from the rest and to punctuate these
efforts, here under is an example of how ERM is practiced and managed
in the Philippine setting to complement the theoretical discussion in the
previous chapter.
 THE ABC CORPORATON:
ERN CREATING A STRONGER GOVERNANCE AND COMPETITIVE EDGE
ABC Enterprise Risk Management (ERM) Policy and Procedures
Manual

(COMPANY NAME AND THAT OF INDIVIDUALS IN THIS

DOCUMENT ARE FICTITIOUS AND PRESENTED FOR PURELY
ACADEMIC PUPOSES)
1) Policy Introduction
The Board of Directors and Management of ABC Corporation
consider Enterprise Risk Management (ERM) as a core and crucial part of
the organization's strategic management. As a process, ABC meticulously
address the risk inherently attached to its activities with the goal of
achieving continuous benefit within each activity and across the portfolio
of all business activities.
For ABC, ERM is the culture, processes and structures that are designed
towards realizing potential opportunities and having control of its adverse
effects. ERM is a tool that Management can use in improving its decision-
making process, minimize losses, and maximize its profits. It provided a
framework or process to effectively manage uncertainties, how to respond to
risks, and discover opportunities as they come to ensure that value is
created, protected and enhanced.
The main purpose of ERM Policy and Procedures Manual is to provide all ABC
personnel with the skills needed to apply consistent and comprehensive risk
management methodology which includes how to identify, analyze, evaluate
and control risks.
ABC's ERM Policy and Procedures Manual follow the COSO Enterprise Risk
Management Framework. It is progressive process which cuts across
throughout the organization's strategy and how that strategy is
implemented. It should address methodically and analyze all the risks
confronting the organization's activities in the past and present and draw
lessons from them so that the future can be ably protected.
 In the process of implementing this Manual, full awareness can be
created on the importance of ERM and the lessons drawn from past
organization's experiences that can help guide and provide the needed
direction to all concerned staff and employees of ABC. It will also preclude
confusion on the part of all involved in ABC's ERM as everybody will be
literally reading from the same page and a common standard is used by all
concerned. In essence, ERM will help create stronger corporate governance
and competitive edge for ABC internally and externally.
2. Definition of Terms
Budget Risk - The likelihood for the approximations or estimations built into a budget to
end up being insufficient in numbers.

Business Risk - refers to the possibility that the company may experience loss in terms of
profit.

Currency Risk - Arises due to uncertainty in exchange rates.

Credit Risk - The stake of loss attributable to a debtor's non-payment on a loan or non-
compliance of contractual obligations.
Decision Theory - also known as theory of choice; It is concerned with distinguishing
the values, uncertainties and other pertinent matters that are significant and applicable
in a given decision, its rationality, and the consequential optimal decision.

Diversifiable Risk - Also called non-systematic or particular risk; a risk that affects only
some individuals, businesses, or small groups.

Enterprise Risk Management (ERM) - is a newer concept in risk management that

takes a holistic view of all of the possible risks an organization faces.

Expected Value of Perfect Information (EVPI) - the cost or price that one would be
willing to shell out in order to acquire access to perfect information.

Event - one or more of the possible outcomes of doing something.

Frequency - the number of times losses have happened in a given time period.

Hazard -condition that increases the possible frequency or severity of a low or both.

Objective risk - anything that is quantifiable and measurable either directly indirectly,
the measurable variation in uncertain outcomes based on facts or data.
Opportunity Loss - also known as Regret, is the difference between the pay from the
chosen alternative given a state of nature.

Peril - the direct or immediate cause of a loss.

Political Risk - May include a change in government policy.

Probability - the rate of the possibility or chance that an incident will occur, The
Probability of an event occurring is somewhere between impossible and certain.

Pure Risk - Also known as absolute risk; a chance of loss or no loss, but no chance of
gain.

Risk - the potential of gaining or losing something of value. Values (such as physical
health, social status, emotional well-being, or financial wealth) can be gained or lost when
taking risk resulting from a given action or inaction, foreseen or unforeseen (planned or
not planned).

Risk Appetite - the volume or amount of risk is prepared to accept in quest of value. on a
broad level an enterprise.

Risk Avoidance - an advised decision is made to eradicate risk or to elect for a different
level of risk.
potential loss.

Risk Management - the appellation granted to a rational and logical

process of identifying, analyzing, treating and monitoring the risks
implicated in any endeavor or procedure.

Risk Management Process - the systematic application of management

policies, procedures and practices to the tasks of identifying, analyzing,
evaluating, treating and monitoring risk.

Risk Reduction - the fitting practices and management standards are

carefully operated to mitigate either the likelihood and/or penalties of
known risks.

Risk Retention - preferred term for self-insurance; a form of self-

insurance employed by organizations which have determined that the cost
of transferring a risk to an insurance company is greater over time than
the cost of retaining the risk and paying for losses out of their own reserve
fund.
Risk Transfer - the accountability or problem for damage or loss is reallocated to
another party through contractual provisions, insurance or other means.

Sales Risk - Potential events or conditions that result in the failure to meet a
sales objective or goal.

Severity - denotes how bad the loss has been in both human and monetary
terms.

Speculative Risk - A chance of loss, no loss, or gain.

Strategic Risk - The process of identifying, assessing, and managing the risk in
the organization's business strategy as well as obtaining immediate action when
risks are recognized.

Subjective Risk - refers to an individual's mental perception or condition; the

perceived amount of risk based on an individual's or organization's opinion.
 3. Objectives of Enterprise Risk Management
The management of ERM is the responsibility of all ABC employees. Specific
risk responsibilities are assigned to different groups, divisions and various levels within
the organization. Complete and current risk information are made available to them so
that this can assist management in making more informed decisions both to support
strategic corporate direction and operational objectives.

ERM is not a stand-alone program but a discipline that requires its integration
with existing business processes. These would include budget planning so proper and
adequate resources are made available to ensure successful ERMS implementation.
Specifically, the objectives of ERM framework are
to:
 Provide a systematic approach to the early identification and management of
risk.
 Provide a consistent risk assessment criterion.
 Make available accurate and concise risk information that informs decision
making to include business direction.
 Adopt risk treatment strategies that are cost effective and efficient in reducing risk to
an acceptable level; and
 Monitor and review risks levels to ensure that risk exposure remains within an
acceptable level.

4. Benefits of ERM
Implementation and application of a consistent and comprehensive risk management
process will help achieve the following:
 Increase the likelihood of ABC achieving its strategic and business objectives.
 Foster a high standard of accountability at all levels of the organization.
 Support more effective decision making through better understanding of risk
exposures.
 Create an enabling environment that will allow ABC to deliver timely services and
meet performance objectives in an efficient and cost-effective manner.
 Protect ABC's assets to include human, property and reputation.
 Successfully meet compliance and governance requirements: and
 Achieve competitive edge over the rest of the key players in the market.
 5. Roles and
Responsibilities
In every endeavor, it is always a requirement that roles and responsibilities of
all concerned must be properly delineated and made clear. This will preclude
confusion and at the same time, contribute to the smooth operations of all
functional units.
In the case of subject ERM Framework being covered, the same premium
attention has to be given to the roles and responsibilities as reflected in the
Table Organization as approved by the Board of Directors. This will be carried
down to lowest level of the organization and thus, line units will be basing its
line of authority and accountability on an approved document and structure.
The ability of ABC to conduct effective ERM is largely dependent upon an
appropriate risk governance structure and well-defined roles and
responsibilities.
It is extremely important for each ABC employee to be aware of his or her
individual and collective risk management responsibilities. This is because it is
not merely about having a well-defined process but also about effecting
behavioral change in each of the ABC employee so that ERM is embedded in all
Actual experience in the corporate world has shown that in most cases, the
success of the implementation of any given program hinged largely not only on
the awareness level of the employees but more so, on a clearly defined structure
and attendant compliance of all manpower complement concerned.
This is the key to a successful ERM framework implementation.
 ABC CORPORATION
RISK MANAGEMENT GOVERNANCE
STRUCTURE
ABC
Board of Audit and Risk
Directors Management
Committee

ABC President

Risk
Management
Executive
Directors
Risk Management Group
(Head by Chief Officer)

ABC Employes