Final answer:
The 5th component of ERM is 'Sharing', where a risk is distributed or transferred to other parties through means such as insurance or joint ventures.
Step-by-step explanation:
The 5th component of Enterprise Risk Management (ERM) is Sharing. It involves distributing or transferring the risk to other parties. This is often achieved through insurance, partnerships, or outsourcing. When a company chooses to share a risk, it effectively dilutes the potential negative impact of that risk by involving another entity that agrees to take on a portion of the risk, typically for a fee. This is one of the strategic risk responses management can apply in the ERM process, which includes identifying, assessing, responding to, and monitoring risks.
Risk sharing is particularly useful when a single organization does not want to bear the full brunt of a risk alone. Companies may opt for sharing risks when they are too large or complex to manage internally. A common example is a joint venture, where two or more companies come together to undertake a project or business activity, sharing both the risks and rewards.