Coordinating Risk Management and Performance Measurement (Portfolio 5308)
This Portfolio links two areas of accounting, enterprise risk management (ERM) and performance measurement, which are traditionally treated separately.
Organizations face increasing pressure from various stakeholder groups to manage business risks effectively and to report their performance transparently across such risk management initiatives. This Portfolio links two areas of accounting, enterprise risk management (ERM) and performance measurement, traditionally treated separately. Based on this linkage, the Portfolio provides a model that should help organizations better understand and perform effective risk management, as well as communicate their risk management efforts to external stakeholders.
The Portfolio begins by surveying ERM and performance measurement, including corporate sustainability reporting (CSR)—also referred to as triple bottom-line (or TBL) reporting. This explanation draws upon two other Bloomberg Tax and Accounting Portfolios (cited below) that examine ERM and TBL, respectively. The Portfolio then posits that limitations associated with ERM and CSR—most notably the lack of support from boards of directors and senior management and the lack of relevant and reliable measures—have prevented ERM and CSR from reaching their full potential. The Portfolio addresses these limitations by developing a methodology for applying performance measurement processes to ERM that the authors believe can lead to relevant and reliable measures of ERM effectiveness. These measures then can be utilized as catalysts to create improved mechanisms for developing, formatting, and issuing improved CSR reports. The Portfolio concludes by developing the Stakeholder Accountability Report, an evolved CSR report that incorporates a process for identifying, measuring, and reporting ERM performance that should help create firm value through enhanced corporate reputation and more transparent reporting to stakeholders.
This Portfolio may be cited as Bloomberg Tax Portfolio 5308, Ballou and Heitger, Coordinating Risk Management and Performance Measurement (Accounting Policy and Practice Series). Readers interested in more detailed information on intertwined subjects are encouraged to consult Bloomberg Tax Portfolios 5302, Taylor, Corporate Accountability and Triple Bottom Line Reporting (Accounting Policy and Practice Series); 5303, Shenkir and Walker, Enterprise Risk Management (Accounting Policy and Practice Series); and 5304, Frigo, Using the Balanced Scorecard Framework (Accounting Policy and Practice Series).
Table of Contents
I. Purposes, Role, and Scope of Portfolio
II. Enterprise Risk Management From an External Perspective
III. Performance Measurement From an Internal and External Perspective
IV. Benefits of Linking ERM and Performance Measurement
V. A Model Linking ERM and Performance Measurement
EY Professor & Co-Director, Center for Business Excellence
Deloitte Professor & Co-Director, William Isaac & Michael Oxley Center for Business Leadership