What do you understand by Enterprise Risk Management? What are its components?

Enterprise risk management provides a principle-based approach to help organization design and implement enterprise wide approaches to risk management. It is affected by entity's board of directors, management and other personnel applied in strategy setting across the enterprise, designed to identify potential events that may affect the entity and manage risk within its risk appetite. It consists of eight interrelated components. These are derived from the way management runs an enterprise and are integrated with the management process. These components are: Internal Environment - The internal environment encompasses the tone of an organization, and sets the basis for how risk is viewed and addressed by an entity's people, including risk management philosophy and risk appetite, integrity and ethical values, and the environment in which they operate. Objective Setting - Objectives must exist before management can identify potential events affecting their achievement. Enterprise risk management ensures that management has in place a process to set objectives and that the chosen objectives support and align with the entity's mission and are consistent with its risk appetite. Event Identification - Internal and external events affecting achievement of an entity's objectives must be identified, distinguishing between risks and opportunities. Risk Assessment - Risks are analysed, considering likelihood and impact, as a basis for determining how they should be managed. Risks are assessed on an inherent and a residual basis. Risk Response - Management selects risk responses – avoiding, accepting, reducing, or sharing risk – developing a set of actions to align risks with the entity's risk tolerances and risk appetite. Control Activities - Policies and procedures are established and implemented to help ensure the risk responses are effectively carried out. Information and Communication - Relevant information is identified, captured, and communicated in a form and timeframe that enable people to carry out their responsibilities. Effective communication also occurs in a broader sense, flowing down, across, and up the entity. Monitoring - The entirety of enterprise risk management is monitored and modifications made as necessary. Monitoring is accomplished through ongoing management activities, separate evaluations, or both.