(i.e. Enron &Worldcom) Bahrain's financial sector need to establish and implement ERM framework. In another article for Walker, Paul L and Shenkir, William G. (2008) his article highlights Enterprise Risk Management (ERM) practices that improve a company's ability to manage risks effectively. \authors argue that ERM allows companies to proactively manage risk, clarify the organization's risk philosophy, and develop a risk strategy.\Further, the article discusses how the ERM process forces companies to consider those events that might stand in the way of achieving corporate goals. Then companies can assess these risks and develop strategic plans. Discussion of contingency plans, measuring effectiveness, and communications strategies is also presented. Referring to Paul, shenkir &William (2008) article we mentioned that Bahrain financial sector need to establish &implement ERM framework, this article highlights one way to start implementing ERM which is establishing good internal controls which we will also consider it one of the ERM factors in later stages of this project.This article explains how we can implement ERM. We strongly agree with Walker as ERM is trying to imagine what could happen to the company in the worst scenario therefore the company should establish Internal controls for each and every department and those controls should be communicated to all employees &implemented. As we said we agree with the author when he said that \companies to proactively manage risk\
Cokins, Gary (2010) stated that \notes that the four types of alternative risk categorization are market and price risk, credit risk and operational risk\talks about risk categorization .We disagree somehow with the researcher when he categorized risks into Market, Price, credit &Operational. As we would classify them to: Strategic, financial, Operational &Reputation. He could have done better job by listing price and credit under financial. In another article for Richard S.Warr &Donald P.Pagach, (2010) said in his article \management (ERM) principles on firms' long-term performance by examining how financial, asset and market characteristics change around the time of ERM adoption. Overall, our results fail to find support for the proposition that ERM is value creating, although further study is called for.\
to support that ERM is value creating, we mentioned earlier that implementing ERM does not only mitigate the risks, however it also adds value .During our detailed testing in Bahrain financial sector we are either going to agree with this article or disagree. McAliney, Peter J (2009) said \readers the operational considerations to implement this program within their organization to enhance performance improvement. At the individual initiative level, readers will recognize elements used in developing retrospective return on investments (ROIs) for learning programs. \ERM concept with the line executive as all employees in the company must be aware of what possible risk might take place to better appreciate the internal controls which will be established by the Management in later stages. We are going to test how whether financial sector in Bahrain have well established internal controls while doing their business. If Management doesn't communicate such issues with employees then they won't understand the reason for policies &procedure changes, etc. We also agree that by performing good and effective ERM the ROI's will improve as we believe that ERM adds value to all business processes. In another SHABUDIN, Ebrahim, DREW, John O. &PEROTTI, William L. (2007), said that\just about mitigation but also about optimization. %us in writing the project as they segregated risk into other classification which is quantitative &qualitative risk. We might need to through light on the difference between quantitative &qualitative as part of the introduction. We also agree with the researcher when he mentioned that it is not about mitigation but optimization however we would also like to add that ERM is also about \
While Ohio State University, (2006) stated that \management creates value for shareholders\creating value, and as we learnt in our finance courses that the goal of any firm is to increase the value of stockholders. This article also draws attention on the risk appetite which we will explain later as one of the ERM factors. David L. Olson, (2010), stated that \paper demonstrates support to risk management through validation of predictive scorecards for a large bank. The bank developed a model to
assess account creditworthiness\This article supports our project. It writes about financial sector (Bank), it talks about scorecards which we are going to consider it as one of the ERM factors which falls under Internal Controls. This article also supports benchmarking and evaluating actual performance against competitors which will also be tested in our questionnaire. 3. Research Methodology
This project was conducted by analyzing results of distributed questionnaires about Enterprise Risk Management (ERM) in Bahrain Financial Sector. A questionnaire was published on the web and sent to banks in Bahrain and specifically to risk management and internal audit department. The questionnaire will cover the following areas being: (1) general questions, (2) questions relating to risk awareness and (3) questions relating to ERM factors. This research is trying to identify the extent to which good enterprise risk management (ERM) practices are being implemented and communicated throughout the banks. In addition, we are going to test how important the ERM factors established against a good ERM practice.
Hypothesis
In order to state the hypothesis we need to identify successful factors defining ERM.
As defined by KPMG (one of the big four Auditing firms) the following are the factors of successful ERM:
Referring to the above table we can identify the following independent factors which must be in place for an effective and successful ERM:
According to the above factors we are going to design a questionnaire tailored for Bahrain corporations (financial sector), published on Google. Results will be analyzed and hence conclude findings. 4. Challenges
If firms don't implement ERM all value chain activities will be subject to risk. As previously mentioned; risk can be divided into strategic/financial/operational. Each of the activities whether its support or primary it is subject to risks. If we ignore deploying clear ERM framework we might end up with financial losses (like
bankruptcy/operational risk reputation. 5. Result analysis
We have identified 8 factors however due to time constraints we will only choose the 4 most important factors according to KPMG one of the big 4 auditing firms and specialized in ERM.
A questionnaire was tailored based on the above mentioned 8 factors and this questionnaire was conducted in 2010 &it was distributed to financial sector in Bahrain; only 33 questionnaires .The results were organized in tables and graphs which facilitate our analysis and help the reader better understand.
SPSS was used for the purpose of analyzing the results. SPSS test results were conducted on 4 independent factors &the dependent factor (ERM) using 2 questions for each factor. 6. Discussions
After analyzing the results we conclude that F test results show that there is no relationship between risk assessment &ERM, communication &ERM, monitoring &ERM, but there is a relationship between control &ERM.
In addition, almost all the respondents answer the questions positively either strongly agree or somewhat agree, and these factors that we used for the analysis were essential factors in COSO framework, so we used T test analysis to examine the three factors separately, and the results for each factor conclude a positive results which mean that all Bahrain financial firms consider risk assessment, control, monitoring and communication while implementing ERM.
After reviewing all the published literature reviews written about Enterprise Risk Management .We think that this subject was not fully consumed by researchers, as researchers didn't touch all the areas or in some cases they did but very briefly.
This research is more comprehensive as it includes ERM from the very first point, then it will walk easier through the different factors in COSO framework.
As we mentioned in the result analysis that financial sector in Bahrain are aware of the importance of ERM however companies can't perform it by themselves and use other professional firms to have effective ERM in place and we can say the reason for
that is due to unavailability of enough sources and explanation of ERM framework.
This project agrees with Walker, Paul L and .Shenkir, William G. Research published on (Mar2008) as ERM is trying to imagine what could happen to the company in the worst scenario therefore the company should establish Internal controls for each and every department and those controls should be communicated to all employees &implemented. However our project results disagree somehow with the researcher when he categorized risks into Market, Price, credit &Operational. As we would classify them to: Strategic, financial, Operational &Reputation. He could have done better job by listing price and credit under financial. 7. Conclusion
The result of the project concludes that Bahrain financial Corporations are aware of the Concept of ERM and its factors and that awareness can be traced to the fact that companies appreciate that risks are things that might face us in our day to day activities and all companies regardless of its capital and how experienced is their employees are subject to different types of risks. The project conclude that companies are aware of the different classifications of risks and that there is no one standard classification of risk as mentioned in the literature review section Article number 11 where better classification of risk could be put in place.
Bahraini Financial Institutions are lead by the Central Bank of Bahrain rules and since having Effective ERM framework is not insisted in the rulebook as the need for independent internal auditors, the corporations will not consider it as priority .As we understand that companies are more concerned with compliance with the CBB rule book .As explained earlier although companies are not required to have ERM process by the Central Bank of Bahrain, it seems that many companies are looking forward to have contracts signed with Professional firms to conduct ERM studies.
Keeping in mind that professional firms charge quite a high fee for conducting ERM studies, however as a result of the questionnaire we can say that companies would not matter to pay any amount as long as they can ensure that they are on the safe side by having ERM.