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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

Which of the following is a recognized benefit of adopting ERM rather than managing risks in silos?

A recognized benefit of ERM is better capital allocation, because it reveals aggregate risk and interdependencies across business units. ERM cannot guarantee against losses, does not replace the risk appetite statement, and cannot remove correlations that exist between risk types.

  1. AIt improves capital allocation by revealing aggregate risk and interdependencies across unitsCorrect
  2. BIt guarantees that the firm will not experience losses
  3. CIt removes the need for a risk appetite statement
  4. DIt eliminates all correlation between risk types

Explanation

ERM provides an aggregated view of risks and their interdependencies, which supports better capital allocation and decisions. It cannot guarantee no losses, still requires a risk appetite, and does not change actual correlations between risks.

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