ERM for NonCorporate Entities Sim Segal FSA CERA

Examples of non-corporate entities § Nonprofit organizations – Charities – Professional associations § Government

ERM complications at non-corporate entities Corporate Entities Non-Corporate Entities Primary stakeholder? Yes; shareholder No;

Objectives-Based ERM Framework Risk Appetite Strategy Qualitative Assessment Risk Mgmt Tactics ERM Committee Scenario

ILLUSTRATIVE EXAMPLE Developing risk scenarios: FMEA 1) Identify interviewees - Those closest to the

Contact information Sim Segal, FSA, CERA President Sim. Ergy Consulting LLC Chrysler Building 405

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ERM for Non-Corporate Entities Sim Segal, FSA, CERA President, Sim. Ergy Consulting Author, Corporate Value of Enterprise Risk Management ERM Symposium 2012 Washington, D. C. April 19, 2012

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 3 Copyright © Sim. Ergy. All rights reserved.

Objectives-Based ERM Framework Risk Appetite Strategy Qualitative Assessment Risk Mgmt Tactics ERM Committee Scenario Development Impact Severity Enterprise Risk Exposure Likelihood Key Risk Scenarios Correlation Likelihood 6 Mostly Objective X Key Metric #1 All Risks Key Risks 1+ events / sim 1 event / sim Mostly Subjective ERM Model ▪ Baseline ▪ ΔBaseline Identification Quantification Decision-Making Pain Point Likelihood ΔKey Metric #1 ≤ -10% 15% ΔKey Metric #1 ≤ -20% 3% Individual Risk Exposures

ILLUSTRATIVE EXAMPLE Developing risk scenarios: FMEA 1) Identify interviewees - Those closest to the risk - Usually 1 or 2 risk experts 2) Develop risk scenario - Begin with credible worst case - Select specific scenario and think it through 3) Assign likelihood 4) Quantify Risk: Legislation Risk Attendees: xxx, xxx Scenario 1: Legislation passes reducing business opportunity in certain markets Likelihood: 5% Financial impact: • Revenue impact o 50% loss of planned revenues in market A • 1 st year: -$2. 5 M • 2 nd year: -$2. 6 M • etc. o 100% loss of planned revenues in market B • 1 st year: -$1. 0 M • 2 nd year: -$1. 1 M • etc. §Expense impact o Reduction in workforce • -10% of salary and related benefits • +$100 K severance costs - Determine impacts on free cash flow 5 Copyright © Sim. Ergy. All rights reserved.

Contact information Sim Segal, FSA, CERA President Sim. Ergy Consulting LLC Chrysler Building 405 Lexington Ave. , 26 th Flr New York, NY 10174 (917) 699 -3373 Mobile (646) 862 -6134 Office (347) 342 -0346 Fax sim@simergy. com www. simergy. com 6 Copyright © Sim. Ergy. All rights reserved.