University of Phoenix
LAW / 531
Enterprise Risk Management
Enterprise risk management (ERM) strategies are becoming critical in the mitigation and management of risk factors businesses incur in today’s corporate climate. Increasingly, companies are presented with strategic options and investment opportunities involving human and monetary collateral. The exercise presents a simulation in which tort violations are to be identified and mitigated through the seven elements of ERM. By evaluating the simulation violations with regard to pre-emptive risk management steps, a better understanding of how such pitfalls can be identified, prevented, and/or mitigated will be achieved.
The simulation presents Quick Takes Video, a fictitious company, receiving a lease shipment of new video editing equipment from Non-Linear Pro (Pearson Publications [Pearson], 2011). Subsequently, the equipment failed to perform to the expectations of Quick Takes Video, thus presenting several legal dilemmas. In reviewing the simulation, the presence of misrepresentation on the part of Non-Linear Pro exists in failure to deliver equipment performing not only to Quick Takes Video’s expectations, but also to the express claims presented during their sales presentation. This breach of civil duty to the purchaser resulted in exorbitant loss of man hours in learning the system in addition to lost revenue from the perceived benefit from the new higher speed video editing equipment (Pearson, 2011). Potential damages to Quick Takes Video are unproductive time spent by employees learning the underperforming equipment as well as being tied to a long-term lease on the same equipment. Potential damages to Non-Linear Pro are the potential suits for Breach of Warrantee involving the bargain of benefit, forcing them to pay for the perceived value of the equipment had it worked to expectations, and physical damages where Non-Linear Pro will be forced to pay actual damages including loss of business and time spent by employees learning their system.
In reviewing the simulation, Quick Takes Video would have benefited from an Enterprise Risk Management system of policies and procedures, involving internal audit analysis for expenditures such as the purchase of new video editing equipment. Initially, a management commitment to ERM, involving developing and training the enterprise and create a corporate culture of ownership of risks is essential. The simulation suggests that Quick Takes Video is non-responsive to input from employees resulting in large purchases being guided by upper management (Pearson, 2011). A strong corporate system of checks and balances involving employee ownership and education would assist in creating a better knowledge base for evaluating the pros and cons of purchasing a particular editing equipment piece. Internal audits would provide for a better framework for decision making, promoting and reinforcing the benefits of risk management (Harb, 2008).
A collaborative exchange from employees vested in the company’s risk management is critical to a more informed decision process. Communication and consultation will address the what-if scenarios involving a purchasing decision. Employees of each level need to be actively involved in the risk management process. For example, a collaborative exchange of information by Quick Takes Video would have presented alternative options and ultimately a better rounded risk management position in researching Non-Linear Pro’s history of customer satisfaction before investing. An internal audit would provide for a risk management framework rather than one person making a decision based on his/her biases.
Ultimately, ERM must be documented and indoctrinated into procedure for it to become everyday practice. Creating a company policy of risk management places culpability on the decision making process and mitigates against an impulse or uneducated…