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Mediating Effect of Enterprise Risk Management on Quality Communication

and Performance of Malaysian Public Higher Educational Institution: A
Conceptual Framework

Article in Indian Journal of Public Health Research and Development · December 2018
DOI: 10.5958/0976-5506.2018.02156.3

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 DOI Number: 10.5958/0976-5506.2018.02156.3

Mediating Effect of Enterprise Risk Management on Quality

Communication and Performance of Malaysian Public Higher
Educational Institution: A Conceptual Framework

Ummu Ajirah Abdul Rauf1, Nusaibah Mansor1, Juhaini Jabar1

1
Lecturer, Centre of Technopreneurship Development (CTeD), Faculty of Technology Management and
Technopreneurship, Universiti Teknikal Malaysia Melaka (UTeM), Malaysia

ABSTRACT
Enterprise Risk Management (ERM) was introduced many years ago and currently implemented by many
countries as well as organizations due to positive impact, especially in their performance. Besides, it is an
approach that is useful to helps organization in order to manage the risks for better outcome. In Malaysia,
it was first implemented around ten years ago and the organizations are recommended to use it as a tool
or basis to recover any potential risks. ERM is believed as an effective technique to manage the risk and
is fast becoming the best practice standard. Therefore, the factors that influence ERM implementation in
organization should be taken into consideration. Hence, the aim of this paper is to construct a conceptual
framework that describes the relationship between quality communication and organizational performance.
This relationship will mediate by ERM implementation. The area of this paper will be focus on Malaysian
Public Higher Educational Institution (IPTA), which are 20 institutions that listed under Ministry of Higher
Education (MOHE).

Keywords: Enterprise risk management, Quality communication, Knowledge management, Performance,

Educational institution, Malaysia

INTRODUCTION In 2007, three leading higher education associations

which are The University Risk Management and
Higher education is recognized for pioneering and Insurance Association (URMIA), the Association
leading trends, exploring new knowledge, promoting of Governing Boards of Universities and Colleges
new ideas, and transforming innovation that can be (AGB) and the National Association of College and
turned successfully and practically to business, industry University Business Officers (NACUBO), have strongly
and community. However, it is far behind business and recommended for an institutions of higher education
industry in developing and implementing a practical and to go beyond the mere discussion of ERM and start
sustainable enterprise risk management (ERM). The implementing it on their campuses. This is because, risks
National Association of College and University Business also occur at higher education institutions and they should
Officers (NACUBO) released a report on managing risk consider risks as part of their strategic planning process3.
in higher education in 2003 that encouraged higher Furthermore, ERM can be beneficial for universities
education leaders to implement an advance effective risk in addressing key areas of risk that being faced by
management programs32. universities and manage the risks that lead to achieving
the universities’ key performance indicators11,32. Thus, it
Corresponding Author: can minimize the consequences of unfavorable events
Ummu Ajirah Abdul Rauf and will motivate the decision-making process to ensure
Lecturer, Centre of Technopreneurship specified organizational performances are met34.
Development (CTeD),
Faculty ofTechnology Management and Technopreneurship, In Netherland, higher education institutions still do
Universiti Teknikal Malaysia Melaka (UTeM), Malaysia not routinely have an integrated policy related to risk
Email: ummu_ajirah@yahoo.com.my management11. In Malaysia, the introduction of University
 Indian Journal of Public Health Research & Development, December 2018, Vol.9, No. 12 2703

Good Governance Index (UGGI) in 2011 requiring public has gained significant interest amongst both academics
universities to implement an organized risk management and practitioners28.
for it to get the autonomy status. Currently, in 2018, the
last six of 20 public universities in Malaysia have finally Thus, most organizations would make sure that
been granted the autonomy status by Education Ministry. the performance measurement is done systematically
Before this, 14 public universities already have obtained and thoroughly23. This is because organizations strive
their respective autonomous status19. However, operating to sustain and improve performance in order to attract
in new environment after being awarded the autonomous investment from the investors and maintain good
status; these universities will be competing intensely relationship with their stakeholders. Previous study
in higher education market, which resulting in greater concur and suggested that in order to increase market
exposure to multi-dimensional risks20. share and attract investors, it is crucial for the organization
to perform well and have a good track record of business
The multi-dimensional risks involves uncertainty performance21. However, today’s business environment
about future government funding, increasing number has made it more difficult as risk has become the major
of post-graduate students, and the pursuit for high factor in every business plans and decisions. Therefore,
ranks in world university ranking, intense competition many organizations and stakeholders are showing more
in getting quality of international students, and global interest in risk management13.
competition. This provides a great challenge for the
universities to explore a framework of risk management Besides, a general argument that organizations
and organizational performance that is workable within employing the ERM will improve organizational
these universities. Despite the existence of a rich performance has received a rising support10. The
literature in the fields of risk management, there is little underpinning theory that supports this research
written about risk management practices in relation to is knowledge management theory. Knowledge
the provision of higher education32. management theory supports this research based on
the fact that the implementation of ERM will help an
However, risk management as a formal part of organization to improve the performance as well as
the decision-making processes within companies is maximize shareholder value17,22. Since no study has been
traceable during late of 1940 and early 19508. This carried out to address the extent of ERM implementation
traditional risk management was practiced in “silo” in higher education, particularly in Malaysia’s public
approach in which risks are often handled individually autonomous universities status, this research gap must
without acknowledging the interrelationship of each be filled.
risk. Meanwhile, ERM is about optimizing the process
with which risks are taken16. This paper aims to propose a framework that
contributes to a better understanding of ERM
Apart from that, in 1990, organizations have implementation by investigating the extent of
started suffering spectacular losses often from risks that implementation of ERM among Malaysian Public
they never should have taken in the first place. Many Higher Educational Institution. Thus, this paper will
companies throughout the world faced big losses in focused on the quality communication that extracted
1990s. For instance, Orange County (November 1994) from Knowledge Management theory. Based on this, the
lost $1.7 billion, Barings Bank (February 1995) lost objectives of this paper are as follows:
%1.5 billion, Daiwa Bank (September 1995) lost $1.1
(a) To examine the extent of ERM implementation
billion and Sumitomo Corp (June 1996) was lost $1.8
among Malaysian Public Higher Educational
billion12,35.
Institution.
Therefore, nowadays, organizations across the world (b) To establish the relationship between quality
are applying ERM concept to deal with risks rationally communication and organizational performance.
and effectively9,18,27-28. ERM is the series of process of risk
identification, assessment and prioritization to handle (c) To investigate the mediating effect of ERM
uncertainties that arise in organization development. As a implementation on quality communication and
result, the performance measurement of an organization organizational performance.
 2704 Indian Journal of Public Health Research & Development, December 2018, Vol.9, No. 12

LITERATURE VIEW it will facilitate passing of information both within and

outside the organization thus improving performance4.
Enterprise Risk Management (ERM): ERM is most
frequently defined with reference to the 2004 guidance The previous study was able to ascertain that
document Enterprise Risk Management-Integrated effective communication have major role to play in
Framework published by the Committee of Sponsoring organizational performance. Recognizing the causes
Organizations of the Treadway Commission (COSO) of firm performance is important especially in the
although there have been various definitions of ERM5,8,15. perspective of the current global crises because it helps
ERM is defined as6: an organization to identify those factors that should be
“A process, effected by an entity’s board of given priority attention in order to improve the firm
directors, management and other personnel, performance2.
applied in strategy setting and across the
Besides, it was found that there was a significant
enterprise, designed to identify potential events
relationship between effective communication and
that may affect the entity, and manage risk to
firm performance. Thus, it means that effective and
be within its risk appetite, to provide reasonable
efficient communication results in better overall firm
assurance regarding the achievement of entity
performance. Meanwhile, ineffective communication
objectives”.
leads to loss of meaning or understanding which in
An evaluation of the various ERM definitions turn leads to mistakes. Success of an organization is a
indicates that they share three important characteristics, reflection of the effectiveness of its communication13.
in that ERM should be1:
Hypothesis 1: There is a positive relationship between
(a) Integrated: ERM must span all the lines of quality communication and organizational performance
business.
Quality Communication and Enterprise Risk
(b) Comprehensive/inclusive: ERM must comprise Management: Knowledge sharing and effective
all types of risk. communication depends on the overlap and
(c) Strategic: ERM must Concorde with the amalgamation of knowledge bases among people30.
overall business strategy and objectives of the The flow of information for risk knowledge in an ERM
organization. context needs communication capacity between the
different groups in risk management33.
Enterprise Risk Management (ERM) is one of the
approaches that goes far beyond the silo-based view of Knowledge sharing has an important influence on
risk10. It is a holistic approach in identifying possible risks ERM implementation, and this goes even further27. A lack
that a firm would encounter and selecting appropriate of risk knowledge sharing can create issues in the ERM
responses that matches enterprise’s risk appetite. processes and the controls may not be enough. The search
for reasons outside an isolated area or unit is important
Quality Communication and Organizational in order to get better answers. Lack of knowledge access
Performance: Communication may be defined as can create failures. Weak communication can provide
the giving, receiving or exchange of information, insufficient knowledge of the operation, poor assessments
opinions or ideas by writing, speech or visual of the lessons learned and poor understanding of the
means or any combination of the three so that the present and forecasts based on risk knowledge. This lack
material communicated is completely understood by of knowledge can be created because of interruptions in
everyone concerned31. Meanwhile, quality or effective the flow of information, which is a component of the
communication is a process by which sender of message, risk management work that is complemented and used
received feedback from receiver in intended24. properly by the expert25.

It was found that the effective communication helps The effective communication among groups
in improving operational efficiency thus improving firm can contribute towards the ERM implementation36.
performance. The study recommended that organizations Furthermore, effective communication plays a critical
should develop effective communication strategies since role in enabling the flow of risk information in a firm
 Indian Journal of Public Health Research & Development, December 2018, Vol.9, No. 12 2705

which will enhance the ERM implementation in firms. formulate new policies or strategies on matters pertaining
Thus, the consequences of limited communication to Enterprise Risk Management in Malaysia. Since this
among groups can be a barrier to overcome for the is a conceptual paper, it is subjected to some limitations
holistic view that ERM needs to have7. surrounding similar conceptual academic works.

Hypothesis 2: There is a mediating effect of Enterprise

Risk Management implementation on quality
ACKNOWLEDGEMENT
communication and organizational performance. The researchers would like to thank Universiti
Teknikal Malaysia Melaka for the UTeM Zamalah
A PROPOSED FRAMEWORK Scheme for sponsorship and Centre of Technopreneurship
Development (CTeD) for assistance in conducting this
This paper will examine the extent of ERM
research.
implementation among Malaysian Public Higher
Educational Institution. Ethical Clearance: Nil

Based on the literatures there are eight factors Source of Funding: University
that were identified under Knowledge Management
theory that contribute towards the extent of ERM Conflict of Interest: Nil
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