In my book, I write the following:
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) raises a sense of urgency for giving attention to proper safeguards. It identifies the framework for safeguards as key risk indicators (KRIs) and defines them as “metrics used by organizations to provide an early signal of increasing risk exposures in various areas of the enterprise. "
Businesses must gauge the risks they want to take in penetrating the market. This is risk to revenue. However, there are many other risks s business faces, which could be costly if not addressed.
Costly risks occur in all functions and organizations among private and public firms alike. The “2010 Report to the Nations on Occupational Fraud and Abuse” found that inventory management comprised the highest percentage of fraud cases (29%). Accounts Receivable came in second (25%) with plant and equipment coming in a distant third (14%). Cash accounts, loans, investments, and prepaid expenses comprised the rest where liabilities from risks occur.
Commitment to risk management serves to close the risk gap and lends to cost reduction. Five risk management deterrents can be excellent starting points for a firm lacking risk management or may be in a rudimentary stage of implementation:
- The tone at the top
- A code of ethics
- Risk management committee
- Internal controls
- Key risk indicators (KRIs)
These five deterrents will enable a company to respond positively to risks affecting it. Start today with their implementation.
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