Frameworks in Risk Management in the supply chain are critical when executing strategies to control daily and unique risks that threaten the supply chain by identifying risks, assessing them, and mitigating them. The aim of risk management is to reduce vulnerability and maintain sustainability. Enterprise Risk Management (ERM) is a field of study of how industries assess, control, finances, and manage the different sources of risks to ensure their value to stakeholders is not affected. ERM is a risk-based approach and employs risk management to achieve strategic planning, internal control, and operations management (Schlegel & Trent, 2014). The use of frameworks in ERM helps businesses and stakeholders understand the wide range of risks facing organizations, supply chains and how the risks can be managed. Creditors and government authorities have increased the scrutiny of risks facing companies, making ERM frameworks important in business management.
The COSO ERM is one of the frameworks involved in providing a reference frame for companies to mitigate risks. It helps organizations to assess and improve organizational risk management. COSO’s ERM framework has several components that are used to provide a reference frame to companies (Schlegel & Trent, 2014). The company’s internal environment sets the companies tone regarding, among other things, how risks are to be managed, the best risk management philosophy, and how to address integrity and ethical issues. The objective setting component is used as a reference to ensure that the enterprise has objectives that support the enterprise’s mission and agrees with the risk appetite. The component of event identification is used as a reference to identify both internal and external events affecting the set objectives. Risk assessment addresses the probability of a risk occurring and the potential impact. Lastly, Risk response guides the management on selecting risk responses such as accepting, preventing, and sharing risks.
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The Governance, Risk, and Compliance framework addresses its three central tenets; risk management, compliance and governance. The framework defines governance as the approach used by senior officials in an organization to direct and control operations. The tenet requires that critical information should reach the management and executive team in good time and without distortion, and similarly, instructions from the management are executed accordingly. Risk management involves processes used by the management to identify, analyze and respond to risks that threaten the organization’s objectives. The perceived gravity of risk informs the action to be taken by the management, and the response can be avoidance, acceptance, or transfer of risks to a third party (Schlegel & Trent, 2014). Compliance is applied at the management level by conforming to stated requirements such as laws and regulations, contracts, and policies. Compliance also involves assessment of compliance level and risks and potential costs of non-compliance.
ISO 31000 is a standard stating the principles and guidelines on risk management, intending to adjust the many established standards and paradigms of risk management with a single universally recognized paradigm to be used in risk management. ISO 31000 regulates framework standards by aligning objectives with their own, establishing standard risk criteria and evaluation metrics, and addressing ERM accountability gaps (Schlegel & Trent, 2014). ISO 28000 states requirements of a security management system in the supply chain. ISO 28000 has several series, for instance, 28001, which provides the standards for implementing supply chain security, and assessments. ISO 73 updates vocabulary used in frameworks and introduces additional terms used in supply chain risk management and taxonomy.
References
Schlegel, G. L., & Trent, R. J. (2014). Supply chain risk management: An emerging discipline . Crc Press.
