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The objective of this paper is to identify the challenges of implementing and adopting an effective ERM system and to suggest alternative strategies that could be pursued as countermeasures to those challenges. This study is based on survey data gathered from 379 respondents representing 129 companies listed on the Colombo Stock Exchange of Sri Lanka. This study found that the lack of availability of information to make risk-based decisions; the need to ensure that all decisions are made within the organization’s risk tolerance level, and the lack of top management support for ERM implementation; are the most influencing challenges for business organizations that obstruct ERM effectiveness. This study suggests that organizations should promote a good corporate culture that fosters ERM supportive internal environment. It is also suggested that the support of the top management and their commitment to being corporative with the firms’ ERM function without making ERM is the sole responsibility of the finance people. Further, it is suggested that organizations have a designated position dedicated to overseeing the ERM function and providing executive leadership for its effective implementation.

Enterprise risk management (ERM) has gained an increased attention during the recent past as an integrated approach to manage risk for creating and preserving firm value. The objective of this study is to explore and empirically verify as to whether the adoption of the ERM has an impact on the firm performance. This study uses both primary and secondary data pertaining to 129 companies listed on the Colombo Stock Exchange under the banking & finance, insurance, diversified, manufacturing, food and beverage and chemical and pharmaceutical sectors. Primary and secondary data are collected by distributing a survey questionnaire and analyzing the published financial statements of the observing companies. Researcher adopts ERM integrated framework suggested by the committee of sponsoring organization (COSO) of the Treadway Commission of the USA to assess the value relevance of ERM and uses return on equity (ROE) as a proxy to measure the firm performance. This study finds, except for control activities, none of the key ERM functions, suggested by the COSO’s ERM integrated framework, has a significant impact on the performance of listed companies. Internal environment, objective setting, and information & communication indicated a weak positive impact on the firm performance. Nevertheless, none of those impacts were statistically significant. Empirical evidence reveals that firms’ risk responding strategies have no impact on the performance. Surprisingly, monitoring of ERM functions has weak negative, but not significant, impact on the firm performance. These findings are contradictory with the theoretical expectation that the adoption of ERM practices has a positive impact on firm performance as confirmed by the prior researchers.