The Valuation Implications Of Enterprise Risk Management

The Valuation Implications of Enterprise Risk Management Maturity by Mark Farrell and Ronan Gallagher seeks to prove that firms who integrate the Enterprise Risk Management (ERM) process tend to enhance their value by recognizing risk. This article states that enterprises will be subject to many risks and that the goal of ERM is to â€Å"model, measure, analyze, and respond to these risks in a holistic manner† (p. 625). As defined by the Casualty Actuarial Society (2003) ERM is â€Å"the discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risks from all sources for the purpose of increasing the organization’s short and long-term value to its stakeholders†. The value of a firm was found by analyzing the ERM maturity assessment score by using the Risk and Insurance Management Society Risk Maturity Model (RIMS RMM), which is commonly known and esteemed. This was done to provide evidence that companies who incorpora te the ERM process tend to add value to their company. This is important because as the article states, the premise of ERM has only been in existence for just over 10 years, and therefore research is extremely limited in regards to how to measure the full effect of ERM on a firm. This article seeks to discuss the value of ERM and how it has evolved, the data and model used to confirm the value of ERM, and then it concludes with the observed results. 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