The Assessment of the Costs Decrease Generated by Risk Management Process using ABC Method

Author:Irinel ION, Ph. D. Student

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Keywords:risks, assessment, ABC method, economies, costs, control

Abstract:
The main objective of this study is to highlight a possible solution that can be used to measure the costs decrease generated by the successful implementation of the risk management processes within an organization. An important challenge for the companies, within the actual crisis environment characterized by the existence of limited funds for the support activities, is to measure the efficiency of the risk management processes of the internal audit function.\r\nThe authors consider that activity based costing methodology can be used to measure the effects at the costs level, generated by the introduction of the risk management activities. The array represented by the activities within an organization is associated with the risks structure, characterized by different occurrence probabilities and their adverse effects. The risk exposure consists in different costs which are supported by the organizations, as the risks, which are inadequately controlled, materialize.\r\nUsing disaggregation, the costs recorded by an organization can be divided into risk free costs and costs which are influenced by the risk exposure of the organization, calculated and presented at each activity level. By comparing the costs recorded before and after the introduction of the internal audit function, one can measure the efficiency of this activity, trough the costs reduction generated by the internal audit. Also, some of the recommendations offered by the internal audit may have the potential of generating additional revenues, thus increasing the operational performance of the company.\r\n

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