Use of internal control instruments in risk management

Abstract

The purpose of this study is to investigate how current practices of internal control improve the process of strategic risk management, and in particular how they are used to develop strategies under uncertainty. As a result of the paper the following tasks were completed. First, we examined the concepts of uncertainty, risk and risk management. Based on the literature review we identified the advantages of using the method of real options as an internal control tool in risk management. We also traced the evolution of the definition and objectives of internal control among frameworks. For this purpose we developed a classification of different systems of internal control. Finally, we applied a method of real options as a tool of internal control to manage the key risks of the Norwegian oil company Statoil.