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

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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:

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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