Risk Management: COSO and SHAMPU frameworks

Over the past decade, risk and uncertainty have increasingly become major issues which impact business activities. Many organizations are raising awareness to minimize the adverse consequences by implementing the process of Risk Management Framework which plays a significant role in mitigating almost all categories of risks. According to Ward (2005), the objective of risk management is to enhance a company’s performance. In particular, the importance of the framework is to assist top management in developing a sensible risk management strategy and program.

In an effort to effectively use the risk management process frameworks, it is important to differentiate between risk and uncertainty. There is a tendency to claim that the process of the COSO framework and SHAMPU framework are more appropriate to further explain and deal with the issues of uncertainty and risk.

This essay will first define risk and uncertainty. In the second section, it will introduce the process of two frameworks namely the COSO framework and the SHAMPU framework. It will evaluate the performance of the two different alternative risk management frameworks to distinguish different between risk and uncertainty. Finally, an opinion will be expressed if the effective use of risk management process frameworks depends upon an ability to differentiate between risk and uncertainty.

Ward (2005) points out that different people have different viewpoints about risks and uncertainties. Some people point out that risk not only can increase an uncertainty thereby causing the difficulty of adverse effect but also can create the higher level of uncertainty thus resulting in the increase in the complexity. In terms of uncertainty, it can be classified into tw...

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... should be designed to reflect current hazards and unexpected future uncertainties. Moreover, the process of risk framework should be able to reflect costs and benefits before making a decision to remove threats.

Finally, we may say that it can be difficult to clearly separate risk from uncertainty. This is because the uncertainty is one part of the scope of risk. In other words, risk and uncertainty are closely linked to the context of risk management frameworks. Thus, it can be inferred that the effective use of risk management process frameworks particularly the COSO and the SHAMPU framework seem unlikely to rely on the ability to differentiate between risk and uncertainty. Although if the framework is able to perfectly differentiate between risk and uncertainty, it seems certain that an organization can appropriately deal with the potential issues.