4/20/2020 Understanding Enterprise Risk Management for Utilities © Copyright 2007, CCRO. All rights reserved. iv actual practice, best practice, and what is appropriate practice for their business and risk portfolio. In short, it can be okay to select a ‘practice gap’ for specific aspects of your ERM framework. The general structure of the ERM framework is shown in Figure E.3. As this diagram demonstrates, the complexity of each component is not emphasized. Rather, it establishes that, when implementing an ERM framework, it should have the components noted, but the sophistication of these components should depend on the complexity of the firm’s portfolio and the available risk management resources. The key components that must be included for a successful ERM framework are: • Identification of Risk Appetite • Definition of Risk Tolerance • Development of a Risk Awareness Culture • Establishment of Corporate Governance • Definition of Risk Metrics • Creation of Risk policies • Establishment of a Capital Allocation process • Implementation of measurement and reporting consistent with the metrics, governance, and strategy Figure E.3: ERM Framework