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What is the strategy and objective setting component of ERM?

Strategy and objective setting is one of the key components of the COSO ERM framework. Enterprise risk management, strategy, and objective-setting work together in the strategic-planning process. A risk appetite is established and aligned with strategy; business objectives put strategy into practice while serving as a basis for identifying, assessing, and responding to risk. Strategy and objective setting will be required to support an organization’s mission and core values.

The 4 principles that relate to the strategy and objective setting include:

Analyzes Business Context—The organization considers potential effects of business context on risk profile.

Defines Risk Appetite—The organization defines risk appetite in the context of creating, preserving, and realizing value.

Evaluates Alternative Strategies—The organization evaluates alternative strategies and potential impact on risk profile.

Formulates Business Objectives—The organization considers risk while establishing the business objectives at various levels that align and support strategy.

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