Integrated management systems: linking risk management and management control systems

Abstract

The success of a company basically depends on the quality of entrepreneurial decisions taken by the executives, which means that the systems and tools for preparing such decisions are critical success factors for the quality of decisions itself. A company's management systems and especially its procedures for preparing decisions therefore must be in a position to enable the decision makers to weigh possible returns against the associated risks as only focusing on the returns could lead to misjudgements. By doing so, it is necessary to not only predict the possible implications of a decision on the company's future earnings, but also on the rating grade and on the company's value as a measure of success. When a decision is being prepared, their effects on enterprise value and rating grade must be made transparent as part of the decision-making. We argue that this is done best by means of integrated management systems which, in particular, link management control and risk management. The methodology behind are simulations based on the risks analysed and modelled in the context of the planning.