AN ETHOS FOR IDENTIFYING THE NON-FINANCIAL RISKS OF BUSINESSES IN FINANCIAL TERMS

TECHNICAL FIELD

[0001] The present invention relates to an ethos for identifying the non-financial risks of businesses in financial terms.

BACKGROUND ART

[0002] According to convention thinking, the potential for loss or damage or "risk" is dealt with generally in a qualitative rather than a quantitative manner, and where attempts have been made to quantify risk, it is generally in the form of values of safety such as Lost Time Injury Frequency Rate (LTIFR) Total Recordable Injury Frequency Rate (TRIFR) or other malleable reporting values (non-financial).

[0003] Identifying the non-financial risks of businesses in financial terms would therefore allow for real value creation for the business when non-financial risks can be quantified. It would allow a business to understand the true costs of risk

[0004] Currently this is not a part of usual business operations/systems. There is far too much focus on words and narrative when attempting to quantify risk and not enough focus on measurement and statistical analysis.

[0005] It will be clearly understood that, if a prior art publication is referred to herein, this reference does not constitute an admission that the publication forms part of the common general knowledge in the art in Australia or in any other country.

SUMMARY OF INVENTION

[0006] The present invention is directed to an ethos for identifying the non-financial risks of businesses in financial terms, which may at least partially overcome at least one of the abovementioned disadvantages or provide the consumer with a useful or commercial choice.

[0007] With the foregoing in view, the present invention in one form, resides broadly in an ethos for identifying the non-financial risks of businesses in financial terms, including the steps of a) Identify the Non-Financial Risks in a particular Business/Entity b) Determine the actual costs for each Non-Financial Risk Area and line item; and c) Assess and Manage the cost as any other Financial line item in a business.

[0008] In step b) above, there may be more than one line item of cost/expense that together add up to the total costs for a particular area of non-financial risk.

[0009] The present invention applies not only to actual damage or loss that is suffered by a business but also with the costs associated with potential damage or loss that could be suffered, which is normally represented as a cost in the form of insurance and which cost is usually only fully included in the financial reports of a business once an actual claim is made and assessed.

[0010] The underlying philosophy of the system of the present invention is to identify one or more risk issues and/or one or more risk sources that have traditionally been dealt with in non- financial manner, that through a qualitative assessment and to quantify each of the one or more risk issues and/or one or more risk sources in quantifiable financial cost or currency terms allowing proper recognition and therefore proper inclusion in financial reporting, measurement and management. The system of the present invention, because it quantifies the value of the one or more risk issues and/or one or more risk sources, allows greater transparency within an organisation as to the actual cost.

[0011] The system of the present invention moves risk management from a qualitative issue to a quantitative issue in which the actual financial cost of one or more risk issues and/or one or more risk sources can be identified, measured and then managed. This will provide an assignable cost which allows more effective decision-making within the organisation.

[0012] The ethos is referred to herein as "Risk Dollarisation" and is directed at identifying the Non-Financial Risks of Businesses in Financial Terms.

[0013] It is a New Philosophy/Ethos concept - a change in mind-set & a way of thinking.

[0014] It is a financial approach to non-financial risk (Non-Financial Risk means a risk to the business that normally is not measured in financial terms).

[0015] For this philosophy when we speak about a business/entity it can be applied to:

• Companies

• Business Units • Countries

• Employer Self Insurers

• Employer Funded Insurance

• States

[0016] For this philosophy when dealing with a Non-Financial Risk, it can be applied to all support/shared services to a business/entity, such as:

• Safety

• Health

• Environment

• Quality

• Industrial Relations

• Human Resources

• Information Technology

[0017] The purpose of the invention is for Non-Financial Risks to be marked, measured and managed just as every other cost is in a business/entity.

[0018] The intent is to use this new philosophy is to engage/influence/alter/shift the way business/business decision makers think/view/act and manage their risk of damage cost.

[0019] By explaining this new way of thinking about non-financial risk in business, will ensure whole of business focuses on and understands both the financial and non-financial details of damage risk.

[0020] The advantages of the present invention are best summarised in the following table: Features of Risk Advantages of Each Feature

Dollarisation

Non-Financial Risks Real value creation for the business when Non-Financial are quanitified risks can be quantified

Understand the true costs of risk Currently this is not a part of usual business

operations/systems

Financial clarity

Measurement and Statistical Analysis vs Words and Narrative

Transparent and Costs of Damage can not be ignored, missed,

accurate operating undervalued, over valued

environment

Currently this is not a part of usual business

operations/systems

Supports the market By quantifying non-financial risk with this philosophy it has driven theory the potential to improve the decisions making process

(related to Non-financial risk)and ultimately the outcomes of those decisions, as the decision maker has a more quantified view (versus qualitative).

This is achieved because the philosophy provides the business greater insight.

Deductive reasoning is used to assess data vs Inductive Reasoning is used

Currently this is not a part of usual business

operations/systems

Assignable cost The value of every part of business can be assigned

according to their damage costs

Damage cost can not be avoided/hidden in unique parts of a business

Will provide real evidence and greater insight to ensure more effective and efficient decision making

Focus is concise and narrow vs Focus is Complex and Broad

New Language for Non Additional specific cost/value for risk rather than the Financial Risk current values of safety - TRIFR, LTIFR and other maluable reporting values (non -financial).

Increases the importance/understanding the current non- financial functions of a business as they will be represented in financial terms.

Quantitative versus sole Qualitative reporting (hard science vs soft science)

The Risk Dollarisation ensures that descriptors of Non- Financial Risk are objective vs subjective.

Basis of Knowing - Cause and Effect vs Basis of Knowing - Meaning, Context

Single Reality that can be measured vs Multiple Realities that are Continually changing with Individual Interpretation.

A new way to think Tests the current Theories/concepts of Risk/Safety which about Risk/Damage allows the leaders of business who think in dollar

Costs terms/financials terms every day to know and understand

the true cost of damage costs.

This philosophy challenges the concept of assigning costs, people and damage in one conversation.

Currently business becomes more comfortable to talk the costs of risk when it is a catastrophe and "we should never do that again".

This philosophy allows a business/entity to accept that

Risk/Damage Costs can be identified, assessed and

managed at all stages of a business - not just at

catastrophe moments.

[0021] Risk Dollarisation identifies the Non-Financial Risks of Businesses in Financial Terms.

[0022] It quantifies items of damage in a business that are normally not costed and managed as any other cost would be in a business - it allows commercially focused people to assign dollars to usually Non Financially measured itesm of risks.

[0023] In turn this leads to better Risk Management as the true value of costs of risk are included in decision making.

[0024] This philosophy challenges the concept of assigning costs, people and damage in one conversation.

[0025] Currently business becomes more comfortable to talk the costs of risk when it is a catastrophe and "we should never do that again".

[0026] This philosophy allows a business/entity to accept that Risk/Damage Costs can be identified, assessed and managed at all stages of a business - not just at catastrophe moments.

[0027] This is completed by the below process; a. Identify the Non-Financial Risks in a particular Business/Entity b. Determine the actual costs for each Non-Financial Risk Area and line item c. Assess and Manage the cost as any other Financial line item in a business [0028] There may be more than one line item of cost/expense that together add up to the total costs for a particular area of Non-Financial Risk.

[0029] According to the new ethos, Non-Financial Risks are quantified, enabling a transparent and accurate operating environment.

[0030] The ethos applies a market driven theory approach to Non Financial risk that has never been quantified before.

[0031] The ethos provides an assignable cost for risk, a new language for non-financial risk and a new way to think about Risk/Damage Costs.

[0032] Any of the features described herein can be combined in any combination with any one or more of the other features described herein within the scope of the invention.

[0033] In the present specification and claims (if any), the word 'comprising' and its derivatives including 'comprises' and 'comprise' include each of the stated integers but does not exclude the inclusion of one or more further integers.

[0034] Reference throughout this specification to 'one embodiment' or 'an embodiment' means that a particular feature, structure, or characteristic described in connection with the embodiment is included in at least one embodiment of the present invention. Thus, the appearance of the phrases 'in one embodiment' or 'in an embodiment' in various places throughout this specification are not necessarily all referring to the same embodiment.

Furthermore, the particular features, structures, or characteristics may be combined in any suitable manner in one or more combinations.

[0035] In compliance with the statute, the invention has been described in language more or less specific to structural or methodical features. It is to be understood that the invention is not limited to specific features shown or described since the means herein described comprises preferred forms of putting the invention into effect. The invention is, therefore, claimed in any of its forms or modifications within the proper scope of the appended claims (if any) appropriately interpreted by those skilled in the art.