Enterprise risk management and performance management are two complimentary processes essential for the management of an organization. Both disciplines are designed to support organizations’ efforts in making decisions and meeting their goals–ERM through the identification and management of those risks that could affect business objectives, and performance management through the identification and measurement of the drivers needed to achieve results.
Risk-adjusted performance metrics offer managers tools that strike the appropriate balance between meeting performance goals and achieving appropriate returns for the risks being taken. The application of risk-based performance management may also lead to incentives that are more aligned with an organization’s long-term success.
These points raise interesting implications for those companies implementing sustainability and other EHS management programs.
– How are EHS elements reflected in the ERM program?
– Are existing EHS/sustainability performance metrics aligned with internal risk management standards and benchmarks?
– Do financial measures of EHS/sustainability performance incorporate risk-adjusted factors that are obtained from the ERM framework?
Elm’s Return on Investment of Loss Avoidance (ROIa)© is an innovative valuation methodology that links EHS/sustainability risk data and financial performance. ROIa© demonstrates financial return of EHS risk reduction investments in terms of both reasonable anticipated loss and the cost of generating new profits needed to recover associated profits. ROIa© utilizes existing financial data along with frequency and severity data obtained through EHS risk assessment processes, then benchmarks that exposure information against varying sets of cost data that are most relevant to client organizations. This produces ROI information for EHS management costs in the context of internally-credible values, risk management and revenue/profit generation benchmarks. Click for a graphic showing general guidance on interpreting ROIa©
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