ERM for Non-Corporate Entities
Sim Segal, FSA, CERA
President, SimErgy Consulting
Author, Corporate Value of Enterprise Risk Management
ERM Symposium 2012
Washington, D.C.
April 19, 2012
Examples of non-corporate entities
 Nonprofit organizations
– Charities
– Professional associations
 Government bodies
 Individuals
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ERM complications at non-corporate entities
Corporate Entities
Non-Corporate Entities
Primary stakeholder?
Yes; shareholder
No; multiple equally-important
stakeholders
Primary objective?
Yes; grow company
value
No; multiple objectives for
each stakeholder
Primary key metric?
Yes; company value
No; multiple metrics for each
objective
Time a complicating
factor?
No; present value
equates cash flows
Yes; need non-cash flow
metrics by time periods
Simple approach to
cash flow
Yes; net the ins/outs
No; e.g., not all cash inflows
are the same
Corporate culture
More rigor in strategic Often less rigor in strategic
plan / projection
plan / projection
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Objectives-Based ERM Framework
Risk Appetite
Strategy
Risk
Mgmt
Tactics
Qualitative
Assessment
ERM
Committee
Scenario
Development
Impact
Severity
Enterprise Risk
Exposure
Likelihood
Key Risk
Scenarios
Correlation
Likelihood
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Mostly Objective
X
Key Metric #1
All
Risks
1+ events / sim
Key
Risks
1 event / sim
Mostly Subjective
ERM
Model
▪ Baseline
▪ ΔBaseline
Pain Point
Likelihood
ΔKey Metric #1 ≤ -10%
15%
ΔKey Metric #1 ≤ -20%
3%
Individual Risk
Exposures
Impact on Key Metric #1
Risk 1
Risk 2
Risk 3
Risk 4
Risk 5
Risk 6
Risk 7
Risk 8
Risk 9
Risk 10
Risk 11
Risk 12
Risk 13
0.0%
Identification
Quantification
Decision-Making
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
ILLUSTRATIVE
EXAMPLE
Developing risk scenarios: FMEA
1) Identify interviewees
- Those closest to the risk
- Usually 1 or 2 risk experts
Risk: Legislation Risk
Attendees: xxx, xxx, xxx
Scenario 1: Legislation passes reducing business
opportunity in certain markets
Likelihood: 5%
2) Develop risk scenario
- Begin with credible worst case
- Select specific scenario and think it through
3) Assign likelihood
Financial impact:
• Revenue impact
o 50% loss of planned revenues in market A
• 1st year: -$2.5M
• 2nd year: -$2.6M
• etc.
o 100% loss of planned revenues in market B
• 1st year: -$1.0M
• 2nd year: -$1.1M
• etc.
Expense impact
o Reduction in workforce
• -10% of salary and related benefits
• +$100K severance costs
4) Quantify
- Determine impacts on free cash flow
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Contact information
Sim Segal, FSA, CERA
President
SimErgy Consulting LLC
Chrysler Building
405 Lexington Ave., 26th Flr
New York, NY 10174
(917) 699-3373 Mobile
(646) 862-6134 Office
(347) 342-0346 Fax
sim@simergy.com
www.simergy.com
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Copyright © SimErgy. All rights reserved.