Download - ROI on EHS Risk Reduction
The Auditing Roundtable 2009 Spring MeetingSan Antonio, Texas
Lawrence M. Heim, CPEAThe Elm Consulting Group International llc
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
The Elm Consulting Group International LLC
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)
The Elm Consulting Group International LLC
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
The Elm Consulting Group International LLC
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:
The Elm Consulting Group International LLC
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
The Elm Consulting Group International LLC
The Elm Consulting Group International LLC
The Elm Consulting Group International LLC
The Auditing Roundtable 2009 Spring MeetingSan Antonio, Texas
The Elm Consulting Group International LLC