Risk management, performance measurement and organizational performance: a conceptual framework

Abstract

In the aftermath of recent global financial crisis and corporate failures, entity stakeholders are demanding greater oversight of key risks facing the enterprise to ensure that stakeholder value is preserved and enhanced. One response to these growing expectations is the emergence of a new paradigm known as “Enterprise Risk Management” or “ERM” as an internal control system. At the same time, organizations have been implementing Performance Measurement System (PMS) as one of management control systems vital for corporate success. Considering the importance of these two control systems, the possibility of incorporating ERM into the existing PMSs needs to be explored. It is expected that risk management will complement PMS by identifying and mitigating risks in achieving strategic objectives. Empirical evidence regarding this link is still lacking, therefore, this paper investigates the linkage between risk management and PMSs. In addition, it also discusses the impacts of these two systems on organizational performance. Finally, a conceptual model for integrating risk management and performance measurement is proposed.