Business Scorecard Analysis to Measure Enterprise Risk Performance
Business scorecards are one of a number of quantitative tools available to support risk planning. An important tool is business scorecards. Olhager and Wikner reviewed a number of production planning and control tools, where scorecards are deemed as the m
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Business Scorecard Analysis to Measure Enterprise Risk Performance
Business scorecards are one of a number of quantitative tools available to support risk planning.1 Olhager and Wikner2 reviewed a number of production planning and control tools, where scorecards are deemed as the most successful approach in production planning and control performance measurement. Various forms of scorecards, e.g., company-configured scorecards and/or strategic scorecards, have been suggested to build into the business decision support system or expert system in order to monitor the performance of the enterprise in the strategic decision analysis.3 This chapter demonstrates the value of small business scorecards with a case from a bank operation. While risk needs to be managed, taking risks is fundamental to doing business. Profit by necessity requires accepting some risk.4 ERM provides tools to rationally manage these risks. Scorecards have been successfully associated with risk management at Mobil, Chrysler, the US Army, and numerous other organizations.5 Enterprise risk management (ERM) provides the methods and processes used by business institutions to manage all risks and seize opportunities to achieve their objectives. ERM began with a focus on financial risk, but has expended its focus to accounting as well as all aspects of organizational operations in the past decade. Enterprise risk can include a variety of factors with potential impact on an organizations activities, processes, and resources. External factors can result from economic change, financial market developments, and dangers arising in political, legal, technological, and demographic environments. Most of these are beyond the control of a given organization, although organizations can prepare and protect themselves in time-honored ways. Internal risks include human error, fraud, systems failure, disrupted production, and other risks. Often systems are assumed to be in place to detect and control risk, but inaccurate numbers are generated for various reasons.6 ERM brings a systemic approach to risk management. This systemic approach provides more systematic and complete coverage of risks (far beyond financial risk, for instance). ERM provides a framework to define risk responsibilities, and a need to monitor and measure these risks. That’s where business scorecards provide a natural fit – measurement of risks that are key to the organization.
D.L. Olson, D. Wu, Enterprise Risk Management Models, C Springer-Verlag Berlin Heidelberg 2010 DOI 10.1007/978-3-642-11474-8_14,
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Business Scorecard Analysis to Measure Enterprise Risk Performance
ERM and Balanced Scorecards Beasley et al.7 argued that business scorecards broaden the perspective of enterprise risk management. While many firms focus on Sarbanes-Oxley compliance, there is a need to consider strategic, market, and reputation risks as well. Balanced scorecards explicitly link risk management to strategic performance. To demonstrate this, Beasley et al. provided an example balanced scorecard fo
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