List 5 steps to develop a risk management program
- Identify and analyze loss exposure
- Examine alternate techniques
- Select techniques
- Implement techniques
- Monitor results
What is the purpose of identifying and analyzing in the development of an effective risk management program?
Identification: recognizes losses that might occur
Analysis: analyzing the likely significance of those possible losses
What is a loss exposure and three factors used to classify loss exposures
The chance of financial loss to the organization resulting from a particular peril that strikes a thing of value
Classified according to:
- type of value exposed
- peril causing the loss
- financial consequences of the loss
Identify 4 types of values exposed to loss, and give an example
- Property values: tangible or intangible
- Net income values: accident can cause decrease in revenue and increase in expenses
- Liability loss: possibility that legal action could be taken
- whom duty is owed
- source of legal duty - Personal loss:
- value of employees service
- cost of providing employee benefits
Identify two key factors used to measure the financial consequences of a loss
- Loss frequency:
A peril occurs frequently over a period of time the cost to remedy the damage, although minor can add up to a substantial amount - Loss severity
The greater the amount of each loss, the greater the financial consequences to the business
What is the primary objective of risk control
To reduce the frequency and severity of losses
Explain “pre-loss measure”
To reduce the amount of property, the number or persons, or other things of value that may suffer loss from a single event
Explain “post loss measure”
Focuses on emergency procedures, salvage operations, rehabilitation activities, or legal defences that halt the spread of loss
Outline the types of forecasts that should be done before a decision is made
- Frequency and severity of losses that can be expected
- Effects that various risk control and risk financing techniques will have on frequency, severity and predictability of those projected losses
- Costs of using techniques
Define duplication
An exact copy of the organization’s assets, that stays unused unless the primary one is destroyed
Define expediting cost
Extra cost to speed up the recovery of a business after a loss
What is “going concern value”
The value of assets of a firm that is actively in business, rather than the value if those assets were disposed of in liquidation sale.
Define intangible property
Property with no physical substance and consists of legal rights rather than things
Define retention
All means of generating funds from within the business to pay for losses
Define risk control
Reduce the frequency and severity of losses as much as possible with resources available
Define risk financing
Concerned with paying losses that will inevitably occur
Define risk management
The process of making and carrying out decisions that will minimize the adverse effects of accidental losses upon an organization
Define segregation
Arranging an organizations activities and resources so that no single event can cause simultaneous losses to all of them
Define separation
Dividing an organizations single asset or operation into two or more separate units
Define tangible property
Property that may be felt, touched, either real or personal
