The website phys.org reported last week on a paper that addresses a enigmatic issue around downward causation. The enigma is where a higher organized state of an organism or organization can cause changes at the lower levels that make up the upper level. However, the argument that the higher level is temporary since it exists due the behavior of the lower levels, which appears contradictory. This problem relates to complexity models, where there is evident self-similarity as you zoom in on the details.
This is almost a which came first, the chicken or the egg?
When creating your ERM models, you can use either a top-down or a bottom-up design. The best models address both of directions of design.
Bottom-up design is where you assess all of the known risks and controls. Then you design your ERM program by prioritizing that list and create your models.
Top-down is where you determine what is needed for strategic planning and decision making. For instance, you look to solve problems and set up controls at the corporate level. In this situation you look at controlling management and financial risks. Also, top-down design places a high priority on the modeling and the efficient use of the company’s capital. Top-down usually leads to greater understanding and controls, but it is difficult to create buy-in from the divisions and subsidiaries.
Bottom-up design requires risk assessments at the lower levels and are more costly. The summary of these assessments usually lead to some surprises to upper management, but ERM buy-in is natural.
Take a look at the Downward Causation article for more details on course-graining and natural systems. Enjoy!