Enterprise risk management: developing a strategic ERM alignment framework- Finance sector

Abstract

This thesis investigates the evolutionary process of risk management practices associated with the implementation of enterprise risk management (ERM) across the finance sector. Despite the increasing number of ERM adoptions in the finance industry in recent years, ERM was still at an early stage of development and further research is recommended. The literature review identifies a gap in the ERM literature, prompting the development of a theoretical framework to investigate key organisational factors critical to effective implementation of the strategic framework. A strategic ERM Alignment Framework was developed to address key shortcomings of existing ERM practices in the industry and to provide practical guidance to academics and practitioners. The research was conducted as a two-stage empirical study in the finance sector, employing sequential mixed methods of data collection and analysis: a series of 35 semi-structured qualitative interviews with senior enterprise risk managers representing a variety of financial organisations, followed by a quantitative questionnaire survey of 115 finance industry professionals. The literature supports the industry view of continuous internal and external pressures towards ERM implementation across financial organisations. The research findings confirm that ERM is perceived to have slowly transformed from a process of compliance to a strategic tool and become a source of value creation and competitive advantage. The study also shows that aligning ERM with core organisational strategies and enterprise risk culture have been the underlying factors driving a strategic ERM framework sustainable over time. Inadequate senior management support for ERM and an insufficiently dynamic enterprise risk culture are identified as the greatest challenges to ERM sustainability. Major benefits of ERM are revealed as well informed risk-adjusted decision making and a strategic enterprise-wide view of key risks. The main contribution to knowledge of this research is the development of a strategic ERM Alignment Framework for the finance sector and practical guidelines for its effective implementation. Specifically, this research offers academics and finance industry practitioners a better understanding of organisational factors critical to the implementation of a strategic ERM Alignment Framework, supported by empirical evidence. Key limitation of the research was identified as the complexity of the ERM Alignment Framework that can be mitigated by undertaking future research to simplify the framework following its practical application. The researcher recommends that future research should focus on intangible elements and qualities of ERM that are important to the Alignment Framework, such as developing a strong and consistent enterprise risk culture, or investigating how the framework can add value to the organisation.