Explanation:
Enterprise Risk Management (ERM) is characterized by a holistic, top-down approach that identifies, assesses, and manages all types of risks across the entire organization in an integrated manner. This allows the firm to understand risk interdependencies and aggregate risk exposure. On the other hand, a traditional silo-based approach involves managing risks individually within separate business units or departments, often missing the big picture and the correlation between different risks. Therefore, Option B correctly describes the fundamental difference between the two approaches.
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Q.5409 Which of the following observations correctly describes the fundamental differences between Enterprise Risk Management (ERM) and a traditional silo-based risk management program?
A
ERM approach reduces the overall risks to the enterprise by focusing primarily on operational risks while a silo-based approach often overlooks operational risks due to its focus on individual business units.
B
ERM approach identifies, monitors, and manages all types of risks in an integrated manner, while a silo-based approach manages risks in isolation.
C
ERM approach tends to increase risk exposure due to its broad focus, while a silo-based approach decreases risk exposure through focused, individualized risk management.
D
ERM approach and silo-based approach are essentially the same, with the only difference being that the ERM approach is used by larger organizations while the silo-based approach is used by smaller organizations.
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