In Part 1 of my article, I proposed that we consider compliance risks using the concept of Microlives (the way that we can measure health risks and benefits over a life time). I have put together a lifespan activity calculator based on this concept and here is my case study to demonstrate how to monetize the costs and benefits of compliance:
- A professional career lasts an average of 40 years, around 2,400 hours a year.
- This is nearly 100,000 hours in a typical work lifetime.
- We can then measure each activity as an increase or reduction in a longevity of a business or revenue in 30 minute intervals (‘Compliance Microlives’ or CMLs).
- Then, let’s estimate an earning of $60,000 per year ($2.4 million over a 40 year period) and turn these CMLs into monetary amounts. A loss or gain of 1 CML.
- $2.4 million divided by 100,000 hours amounts to $24 per hour. That‘s $12 every CML (or 30 minutes) that we win or lose based on compliance activities.
Below is a snapshot of annual risky activities and mitigators and CMLs. I have allocated CML losses and gains for each activity as well as annual and lifetime losses and gains:
| Activity | Loss or increase of CML per week or per instance | Annual increase or decrease | Lifetime increase or decrease |
| 1. 5 minutes of compliance training or engagement or activity once a week. | 2 CML per instance | $1,248 based on 5 minutes of training per week | $49,920 (more than a year’s net income) |
| 2. Engaging a third party agent without due diligence | – 2 CML per week they are engaged | – $8,736 per year.
Assuming the average engagement is 3 per year, that’s a loss of – $26,208 per year. |
Taking an assumption of 3 engagements per year over a 40 year period, that’s -$1,048,230 (nearly half of the average lifetime salary) |
| 3. Reporting incidents | 200 CML per instance | $2,400 | $96,000 |
Whilst the figures I have produced may not be accurate, the principle is a sound one: money talks. If we can monetize it, we can measure it.
There are 14 activities with CMLs that I have developed. Watch out for the full list in Part 3! Wishing you a profitable compliance lifespan.