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ARM 54 Risk Assessment


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The risk management process can be categorized into 6 steps. Name them.
1) Identify Loss Exposure
2) Analyze Loss Exposure
3) Examin the feasability of risk management techniques
4) Selecting appropriate risk management techniques
5) Implementing the selected Risk Management Technque.
6) Monitoring results and revising the risk management program.
Describe the concept of the cost of risk?
The four elements of the cost of risk are:
1) Cost of losses not reimbursed by insurance or other outside sources.
2) Insurance premiums or payments to lenders, non-insurance indemnity, or other outside sources of funds.
3) Costs of menaures to prevent or reduce the size of the losses (i.e. loss control)
4) Administrative costs of risk management program.
What are the elements of any loss exposure?
1) Financial Value
2) Cause of Loss (Peril)
3) Potential financial Consequence
When Identifying Loss exposures a Risk Manager can categorize the financial value based on which 4 types of loss?
1) Property Loss Exposure
2) Liability Loss Exposure
3) Personnel Loss Exposure
4) Net Income Loss Exposure
Describe the two categories of Property Loss Exposure?
Property loss has 2 categories:
1) Tangilble property: consists of land, all permanently attached structures.
2) Intangible proprty - has no physical form, trademarke, copywrites, customer goodwill.
Personal property can be tangible or intangible.
What are types of Liability Loss Exposures?
1) Breach of legal duty
2) Criminal/ Civil Laws-Torts/contracts
Actions - causing Bodily Injury/Physical Damage to a 3rd party.
What are methods of Identifying Loss Exposures?
1) Surveys / Questionnaires
2) Loss Histories
3) Financial Statements
4) Records & Documents
5) Flow Charts - personnel/thru put (bottleneck)
6) Personal Inspections:
7) Experts: inside/outside the organization.
A Risk Management professional Analyzes Loss Exposures along 5 dimensions:
1) Loss Frequency: the # of losses from specified perills.
2) Loss Severity: amount of loss in dollard.
3) Total Dollar Losses: total amoun of losses for all occurrences during a specified period of time.
4) Timing: when losses occure/when loss payments are made
5) Data Credibility confidence the can be placed on data
Describe the Prouty Approach
The Prouty apporach is a risk exposure analysis method that suggests how to treat loss exposures by classifying loss frequencyand loss severity in to broad categories.
Conclusion: loss frequency and loss severity are inversely related for a any given loss exposure.
Risk Control Techniques
fall into 6 categories. What are they?
1) Risk Avoidance: ceasing or never undertaking an activity to avoid the risk of loss.
2) Loss Prevention: reduces frequency of a particular loss. ie. adding guards to machinery, Personal Protective Equipment PPE,
3) Loss Reduction: reduces severity of a particular loss ie. expedite repairs, reduce volume of flammables transported per shipment.
4) Separation: Exposure broken into several avoid eggs in one basket.
5) Dupliation: system back up
6) Diversification: mixed investment portfolio or product lines.
Risk Financing falls into two categories what are they?
1) Transfer: insurance and non-insurance contractual techniques (subcontracting and hold harmless). Hedging: reduces risk of price fluctuations. HH indemnity agreements.
2) Retention: (Planned & Unplanned) Complete Partial) and (Funded & Unfunded)
When Selecting the Appropriate Risk Managemetn Technique thate are the considerations?
1) Forecasts as a basis for selection
a.) Frequency
b.) Effects of future frequency, severity, and precictability of future losses.
c.) Cost of the techniques.
2) Selection Criteria
a.) Financial - least expensive to lower the cost of risk.
b.) non-financial: Social Responsibility, protection of works, legal responsibility/requirement.
Implementing the Selected Risk Management Technique.
1) Technical Decisions: how to implement the technique, contractual services, purchase insurance coverages, negotiate management/department support finance retiention techniques.
2) Managerial Decisionts: authority granted to individuals carrying out the Risk Management Technique.
Monitoring Results and Revising the Risk Management Program.
You constantly review the Risk Management program to be sure it's achieving the goals set by the risk manager.
Monitoring Activities:
1) Results Standards: focuses on acheivements regardless of efforts - i.e. reduction of back injury losses by 10% or less or by say $100K annually.
2) Activity Standards: Focuses on efforts exerted to achieve goals. Condute number of stafety training class on target topics.
Remember! need for revising
- new exposures Identified
-Existing exposure become significant
-Different RM techniques become more appropriate.

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