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Critiques Towards Coso's Enterprise Risk Management (ERM) Framework in Its Basic Assumptions

Most professionals in internal control, risk management and other similar bailiwicks have agreed that Enterprise Risk Management discourses would’ve invariably referred to what the COSO had produced recently: the framework underlying ERM. But this paper takes a bit different stance that views several problematic issues stem from unclear conceptions of either the basic premise underlying ERM or the nature of some ERM’s components outlined by COSO. This paper notes that, at least, there are three points of COSO framework that should be streamlined in order to smoothly establish an ERM policy in organizations as follows; 1. Obscured definition of “risk” that remains unresolved in COSO, 2. COSO’s view in determining the optimum balance between risk and outcome; 3. Practical difficulties in implementing ERM under the COSO framework As an alternative, this paper argues that rather than being confused with “risk” and “optimum balance” terms as mentioned by COSO, something that might be deemed as too academic, we better emphasize our concern towards what Anthony Marshal mentions as the “impact of negligence” (Marshall, Anthony; 2004). Furthermore, this paper also introduces a “reasonable care” treatment –a controllable threshold where some acceptable treatments should be in place to overcome certain predictable exposures, no matter that if they will strike you afterwards– as a preferable risk mitigation action for organizations. This is a more practical and reasonable approach in treating exposures that a company might be challenged by, rather than trying to cover too many types of risk. Liability arises from fault. If there is no fault, there is no liability. If there is no negligence, there is no fault. And this premise should be upheld when organizations start developing their ERM. Keywords: risk, optimum balance, impact of negligence and reasonable care