The Board of Directors' Role in Managing Enterprise Risk

D.

Enterprise risk management (ERM) is a critical aspect of governance and management for any organization. It is an ongoing process that involves identifying, assessing, prioritizing, and managing risks that may impact the achievement of an organization's objectives.

Of the options provided, requiring the establishment of an enterprise risk management (ERM) framework is the BEST way for an enterprise's board of directors to manage enterprise risk. Here's why:

A. Mandating board-approved ERM modifications: While it's important for the board to approve modifications to the ERM program, simply mandating modifications is not enough. The board needs to take a more active role in overseeing the ERM program to ensure that it is effective in managing risks.

B. Requiring the establishment of an enterprise-wide program management office: A program management office (PMO) can play a valuable role in overseeing and coordinating various risk management initiatives within an organization. However, requiring the establishment of a PMO may not be the most effective way to manage enterprise risk. It is more important to have a comprehensive ERM framework that encompasses all areas of risk management and is overseen by the board of directors.

C. Ensuring the cost-effectiveness of the internal control system: While cost-effectiveness is an important consideration for any control system, it should not be the primary focus of the board's risk management efforts. Instead, the board should focus on identifying and managing the most significant risks to the organization.

D. Requiring the establishment of an enterprise risk management (ERM) framework: Requiring the establishment of an ERM framework is the BEST option because it provides a comprehensive and integrated approach to risk management. An ERM framework establishes a common language and methodology for identifying, assessing, prioritizing, and managing risks across the organization. It also provides a mechanism for the board to oversee the organization's risk management efforts and ensure that risks are being effectively managed.

In summary, requiring the establishment of an ERM framework is the BEST way for an enterprise's board of directors to manage enterprise risk because it provides a comprehensive and integrated approach to risk management, establishes a common language and methodology, and provides a mechanism for board oversight.