My slides from BSidesATL.

1. Finance for Hackers or How to get all the budget you deserve Nick Owen @wikidsystems

2. About me

3. Compliance vs Security http://www.flickr.com/photos/turbojoe/556776940/

4. How much security? http://prairiepathways.com/Postcards_from_Kansas/

10. Which Project? Investment $1,000,000 $10,000,000 Net Income $200,000 $2,000,000 ROI 20% 20%

11. What's Investment? Year 1 Year 2 Investment $10,000,000 $6,666,666 Net Income $200,000 $2,000,000 ROI 20% 30%

12. NPV WACC 10.00% Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Taxes 9 9 9 9 9 NOPAT 21 21 21 21 21 NPV $79.61

14. NPV WACC 10.00% Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Taxes 9 9 9 9 9 NOPAT 21 21 21 21 21 NPV $79.61

15. Reduced WACC WACC 9.00% Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Taxes 9 9 9 9 9 NOPAT 21 21 21 21 21 NPV $81.68

17. How is WACC calculated Where Sigma is “Ask your CFO”

20. Volatility

21. A CFO's Dream Earnings

24. Economic Profit WACC 10.0% 10.0% 10.0% 10.0% 10.0% Capital Base 200 200 200 200 200 Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Taxes 9 9 9 9 9 NOPAT 21 21 21 21 21 Cap Charge 20 20 20 20 20 Econ Profit 1 1 1 1 1

25. Cash Machine WACC 10.0% 10.0% 10.0% 10.0% 10.0% Capital Base 200 221 244 278 327 Revenue 100 111 134 167 217 Expenses 70 77 85 97 114 Taxes 9 10 14 21 31 NOPAT 21 23 34 49 71 Cap Charge 20 22 24 28 33 Econ Profit 1 1 9 21 39

27. Economic Profit Bonus Assume $600,000 in Capital at 20% Revenue 100 110 125 100 Expenses 60 60 70 70 Taxes 10 10 10 10 Capital Charge 10 10 12.5 10 Econ profit 20 30 35 10 Bonus 0 0 28.33 25.00 Plow-back 56.66 50.00

28. Reducing WACC WACC 10.0% 9.0% 9.0% 9.0% 9.0% Capital Base 200 200 200 200 200 Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Taxes 9 9 9 9 9 NOPAT 21 21 21 21 21 Cap Charge 20 18 18 18 18 Econ Profit 1 3 3 3 3

32. NPV of Project X WACC 5.00% Investment -$75 Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Taxes 9 9 9 9 9 NOPAT 21 21 21 21 21 NPV $15.16

33. ALE?

34. Improving Risk Management Source: A New Approach for Managing Operational Risk

36. Statistical Analysis

37. ALE 2.x

38. Expected & Unexpected

39. Value at Risk Russell Cameron Thomas: Meritology

40. Add Expected Loss WACC 5.00% Investment -$75 Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Expected Loss 2 2 2 2 2 Taxes 8.4 8.4 8.4 8.4 8.4 NOPAT 19.6 19.6 19.6 19.6 19.6 NPV $9.39

41. Add Unexpected Loss? WACC 5.00% Investment -$75 Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Expected Loss 2 2 2 2 2 Unexpected Loss 0 0 0 0 20 Taxes 8.4 8.4 8.4 8.4 2.4 NOPAT 19.6 19.6 19.6 19.6 5.6 NPV -$1.06

43. Add Unexpected Loss Capital Base 75 75 75 75 75 Revenue 100 100 100 100 100 Expenses 70 70 70 70 70 Expected Loss 2 2 2 2 2 Taxes 8.4 8.4 8.4 8.4 8.4 NOPAT 19.6 19.6 19.6 19.6 19.6 Cap Charge 3.75 3.75 3.75 3.75 3.75 Economic Profit 15.85 15.85 15.85 15.85 15.85 WACC x UL 1 1 1 1 1 Risk-Adjusted EP 14.85 14.85 14.85 14.85 14.85

44. Push the curve Difference between UL 1 and UL 2 == Sleep at night

45. Invest to reduce risk Capital Base 75 77 77 77 77 Revenue 100 100 100 100 100 Expenses 70 72 72 72 72 Expected Loss 5 3 3 3 3 Taxes 7.5 7.5 7.5 7.5 7.5 NOPAT 17.5 17.5 17.5 17.5 17.5 Cap Charge 7.5 7.7 7.7 7.7 7.7 Economic Profit 10 9.8 9.8 9.8 9.8 WACC x UL 5 3 3 3 3 Risk-Adj EP 5 6.8 6.8 6.8 6.8

46. Revising BBR Scenario

47. Vendor-in-the-middle

48. Wrong Way Added expected losses Added Unexpected losses

50. When vendors increase risk Capital Base 75 75 75 75 75 Revenue 100 100 100 100 100 Expenses 70 69 69 69 69 Expected Loss 5 7 7 7 7 Taxes 7.5 7.2 7.2 7.2 7.2 NOPAT 17.5 16.8 16.8 16.8 16.8 Cap Charge 7.5 7.5 7.5 7.5 7.5 Econ Profit 10 9.3 9.3 9.3 9.3 WACC x UL 5 10 10 10 10 Risk-Adj EP 5 -0.7 -0.7 -0.7 -0.7

51. But Nick! My CFO has never heard of Economic Profit!

52. Not so dreamy earnings

54. Reducing Business Risk "No sooner is one problem solved than another surfaces—never is there just one cockroach in the kitchen." Warren Buffet

55. Sony vs Cannon, Japan

56. AAPL vs Sony