A proposition of a performance-based model to evaluate the contribution of Enterprise Risk Management to the firm objectives

Risk is an universal concept that can be perceived across every business areas. Over the last decade, while Enterprise Risk Management is booming and stands under the spotlights of media, a growing interest arises amongst researchers and specialists. The corporations start to implement ERM programs across their business, looking to protect themselves in a market environment more dynamic, complex and aggressive than ever. The portfolio approach of corporate risks favoured by ERM enables companies to adopt a holistic view of their business-related risks, and to manage them properly within their risk tolerance while ensuring competitive advantage and creating shareholders’ value. Nevertheless, the relationship between ERM and firm performance still remains unclear. The concept of the Balanced Scorecard, a multidimensional strategic management tool, will be used to identify the key drivers of the firm’s performance. Hence, we will simultaneously map the effects of ERM and the drivers of the Balanced Scorecard in order to propose a performance-based model that is able to evaluate the contribution of Enterprise Risk Management to the firm’s performance, which is defined as the ultimate objective of this paper. The growing general agreement about this positive correlation, leads us to consider the firm value as reliant to multiple ERM effects such as: Customer Intelligence, Reputation, Innovation, Knowledge, Shareholder Value, Company Financials, Financial Efficiency, Governance, Business Process Optimization, Decision Making, and Risk Management System. Actually, we will find out that firm performance and risks within a company can be managed as “two sides of the same coin”.