Value of enterprise risk management in the South African business environment

Abstract

The research question and phenomenon that is addressed by this research study is: 'What is the perceived importance and level of acceptance of ERM in the South African business environment, and what is the perceived value of ERM in South African organisations?" The definition of ERM utilised throughout this research study is: "Enterprise Risk Management is 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 business objectives". (Committee of Sponsoring Organisations of the Treadway Commission - COSO, 2004: 4) Enterprise Risk Management is perceived by many as being a necessity, but a burden to business caused by increased investor confidence requirements, such as adherence to King 11, Basel II, JSE listing requirements, and the Public Finance Management Act in South Africa, and Sarbanes Oxley requirements placed on organisations listed in the USA, resulting primarily from recent international corporate failures. This causes ERM to be implemented for compliance reasons without obtaining the true value that ERM provides. The main research problem is therefore to firstly identify the extent of acceptance and implementation of ERM ·in organisations in the South African business environment, secondly identify the reasons why organisations implement ERM in these organisations, and thirdly identify factors that describe the perceived value that ERM provides to these organisations.Careful consideration of the statement of the research problem and research objectives, the assumptions made, and delimitation of this research study, confirmed the fact that this research is exploratory in nature. In order to enhance the value of results obtained from this exploratory research study it was decided to design it in a format that makes optimal use of a variety of research methodologies. This combination of research methodologies includes literature review, document study, quantitative questionnaire driven, and qualitative interview driven information gathering and interpretation. By making use of the combination of methodologies the approach to this research enables structured information gathering through the literature review and document study, confim,ation of interpretations made through quantitative questionnaires, followed up by confirmation of the results obtained and further exploration of the topic by way of qualitative interviews. The approach to the research conducted is inextricably linked to four sequential objectives aimed at answering the research question being 'Whal is the perceived importance and level of acceptance of ERM in the South African business environment, and what is the perceived value of ERM in South African organisations?" The four objectives, per related research methodology used, aimed at answering the research question are: • Literature review - Identification of potential benefits of ERM • Document review - Confirmation of status of ERM implementation in selected organisations, and existence of value adding benefits of ERM, as identified during literature review within selected organisations representing the South African business environment. • Quantitative questionnaires - Confirmation of the driving forces of ERM within the selected organisations, the level of implementation and acceptance of ERM within said organisations, and finally confirmation of the validity of value adding benefits of ERM identified during literature review and document review. • Qualitative interview - Confirmation of results identified during literature review, document review, and quantitative questionnaire phases of the research, as well as gathering any additional infonnation regarding the value of EWRM not identified during the previous phases of the research. The findings relating to the research objectives to detennine the perceived importance and level of acceptance of ERM in the South African business environment is that the level of importance or acceptance of ERM in the South African business environment is high. ERM is also at an advanced level of implementation within South African business organisations. South African organisations are reaching the end of the ERM infancy period, and are now entering the next stage of the ERM lifecycle where they should be focusing on maximising the value obtained through appropriate utilisation of ERM principles. The ultimate conclusion reached upon completion of this exploratory research study is that the true value • of ERM in the South African business environment is appropriately described by the following statements: • ERM has the ability to assist organisations with ensuring compliance with applicable laws and regulations; • ERM provides assistance through facilitation with the identification and management of multiple and cross-enterprise risks; • ERM provides support to an organisation's corporate governance process, and thereby increases the confidence stakeholders and regulators has in the organisation that they are stakeholders of; • ERM has the ability to lead to a broader understanding and recognition of risks throughout the organisation through increased communication on the topic; and ERM provides assistance with the reduction and or minimising of possible financial losses that might be encountered by an organisation. This research study successfully achieved the objectives of detennining the current level of importance and level of acceptance of ERM in the South African business environment and also identifies what value is derived from ERM in South African organisations. Regarding the last mentioned objective achieved at completion of this research study, findings made succeeded in identifying key descriptions of the value of ERM in South African business organisations only. A recommendation for future research is therefore that each of the above descriptions of the value of ERM as identified and confirmed during the course of this research study be studied in more detail and that practical actions required to obtain most effective and efficient realisation of these value descriptions be identified, confirmed, and communicated as best practices throughout the South African business environment.