ROIa Presentation

Risks are known/unknown exposures to uncertainties that may impact a company’s ability to achieve business objectives
A predictive concept
Risks should be identified without considering controls or impact
Baseline (uncontrolled) risk profile
COSO Enterprise Risk Management model
Reduces latent assumptions and robust predictions

Traditional risk management provides a good conceptual model
Insurable risk: Bodily injury, off-site clean-up, diminution of property values, third party claims, business interruption/loss of revenue, legal defense costs, product liability-type exposures
Uninsurable risk: Most fines and penalties, capital equipment costs (including pollution controls), voluntary expenditures, known contamination conditions (generally)

Frequency/likelihood factors:
Actual occurrence history/data – internal and external
View of the future, changes in business/operations, emerging trends
Severity/impact factors:
Assumes the event will occur with no mitigation
Existing, established and CREDIBLE value benchmarks
Appropriate and CREDIBLE impacts – internal and external

Leverage risk management function
Frequency/severity based on risk management definitions
External and/or internal loss data
Economic valuation of “risks avoided”
Cost of retaining risk with ROI calculations, for example:

Generate probability-weighted EHS loss
Return on Investment of Loss Avoidance Costs (ROIa)
ROIa can evaluate economic benefit of EHS expenditure in light of:
Probability-weighted EHS loss
Profits needed to offset the EHS loss
Gross revenues needed to generate offsetting profits

ROIa Presentation

by The Elm Consulting Group International on Jun 26, 2009

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