Enterprise Risk Management Comprehensive Framework
ERM Comprehensive Framework ~ at a glance
Business Risk Management Platform - Risk Management Practice -
- Business Risk Management Platform offers a holistic view of the organization with operational and financial risk perspective by monitoring day to day operation of the organization.
- Enterprise System, ERP or other core system, and financial system are the fundamental sources for the risk management practice, and the operational and financial information is communicated daily to the relevant executive managements through the IT system (nerve system for an organization).
- Business Risk Management Platform focuses on the risk factors of
- Complexity
- Central Control
- Change
- Time Interval
- Volume
- Inherent Risk
- Fraud Risk
- Business Risk Assessment Program, utilizing PEXA® Decision Support Platform , offers a wide variety of operational and financial checklist to help the managements to make informed decisions.
- Financial Ratio Analysis Module, utilizing PEXA® Analysis Engine , shows periodically ratio analysis of profitability, liquidity, leverage, and activity of organization’s financial position.
- Business Risk Management Platform becomes effective when it is exercised as a part of the organization’s standard operating procedure.
Business Risk Assessment Program [excerpt]
| No. | Operational Risk Element | Description |
|---|---|---|
| 1 | Business Interruption | Natural disasters, fire, utility supply, infrastructure failure, IT failure, labor, terrorism, industrial sabotage, or counter-party-risk |
| 2 | Attracting Talent | Inability to attract qualified personnel |
| 3 | Retaining Talent | Inability to retain qualified personnel |
| 4 | Manufacturing | Poor yields, throughput, quality, or inability to reduce production costs or to balance customer demand versus capacity |
| 5 | Customer Concentration and Distribution | Inability to expand product distribution channels effectively or existence of high customer concentration |
| 6 | Supply Chain | Supply chain interruptions (both internal and external) due to fulfillment challenges and limited source suppliers or overstocking |
| 7 | New Product Introduction | Inability to timely complete or commercialize new product designs or make commercially viable devices |
| 8 | Obsolescence | Product technological obsolescence |
| 9 | Market | Unfavorable market dynamics—such as inability to produce marketable products or increased competition |
| No. | Financial Risk Element | Problem Indicated |
|---|---|---|
| 1 | Cash and equivalents decline relative to total assets | Liquidity issues; may need to borrow or solicit investment |
| 2 | Receivables grow substantially faster than sales | Perhaps aggressive revenue recognition―recording revenue too soon or granting extended credit terms to customers |
| 3 | Receivables grow substantially slower than sales | Receivables may have been reclassified as another asset category |
| 4 | Bad-debt reserves decline relative to gross receivables | Underreserving and inflating operating income |
| 5 | Unbilled receivables grow faster than sales or billed receivables | A greater portion of revenue may be coming from sales under the percentage-of-completion method |
| 6 | Inventory grows substantially faster than sales, cost of sales, or accounts payable | Inventory may be obsolete, requiring a write-off; company may have failed to charge the cost of sales on some sales |
| 7 | Inventory reserves decline relative to inventory | Underreserving and inflating operating income |
| 8 | Prepaid expenses shoot up relative to total assets | Perhaps improperly capitalizing certain operating expenses |
| 9 | Other assets rise relative to total assets | Perhaps improperly capitalizing certain operating expenses |
Financial Ratio Analysis Module– Sample Financial Key Ratio [excerpt]
| 1 Profitability Ratios |
| 1 Gross Profit Margin |
| 2 Operating Margin |
| 3 Net Profit Margin |
| 4 Return on Assets (ROA) |
| 5 Return on Equity (ROE) |
| 6 Earning per Share (EPS) |
| 2 Liquidity Ratios |
| 1 Current Ratio |
| 2 Working Capital |
| 3 Quick Ratio |
| 4 Inventory/Working Capital |
| 5 Receivable/Working Capital |
| 6 Net Sales/Working Capital |
| 7 Operating Cash Flow to Current Liabilities |
| 3 Leverage Ratio |
| 1 Debt to Assets |
| 2 Debt to Equity |
| 3 Long-term Debt to Equity |
| 4 Interest Coverage Ratio |
| 5 Times Interest Earned |
| 6 Fixed Charge Coverage |
| 4 Activity Ratios |
| 1 Inventory Turnover |
| 2 Average days' inventory on hand |
| 3 Account Receivable Turnover |
| 4 Average receivable collection period |
Project Risk Assessment Program - Risk Management Practice -
- Project Risk Assessment Program, utilizing PEXA® Decision Support Platform, reviews new and existing projects with business checklist to help the executive management to make an informed decision.
- Project Risk Assessment Program is applicable to a wide variety of organizations’ business projects, including new products, customer development, new sales channel, new supply chain, new technology, investment, merger and acquisition, globalization, and so on.
- Feasibility Study Module, utilizing PEXA® Analysis Engine, analyzes the projected financials, cashflows and financial key ratios of the new and existing projects and their impact on the organization.