Discuss in brief Enterprise Risk Management, its components and limitations.

Enterprise risk management is a process, put in place by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. Enterprise risk management encompasses: Aligning risk appetite and strategy. Enhancing risk response decisions. Reducing operational surprises and losses. Identifying and managing multiple and cross-enterprise. Seizing opportunities. Improving deployment of capital. Enterprise risk management 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 Objective Setting Event Identification Risk Assessment Risk Response Control Activities Information and Communication Monitoring Enterprise risk management is not strictly a serial process, where one component affects only the next. It is a multidirectional, iterative process in which almost any component can and does influence another. Limitations While enterprise risk management provides important benefits, it also has certain limitations. In addition to factors discussed above, limitations result from the realities that human judgment in decision making can be faulty, decisions on responding to risk and establishing controls need to consider the relative costs and benefits, breakdowns can occur because of human failures such as simple errors or mistakes, controls can be circumvented by collusion of two or more people, and management has the ability to override enterprise risk management decisions. These limitations preclude a board and management from having absolute assurance as to achievement of the entity's objectives.