Chapter 6 Study Guide and Checkpoints Flashcards
RIsk Management is both a _______ and _______ process
Risk Management is both a DECISION and ADMINISTRATIVE process.
What is the process that arrives at the most cost effective means avail in dealing with loss exposures?
The FIVE STEP PROCESS
The ability of the organization to do the FIVE STEP PROCESS will help determine the success of the _______
…Success of the risk management program
The Five Steps
- Identify and analyze loss exposure
- Examine alternative risk management techniques
- Select Risk Management Techniques
- Implement technique(s)
- Monitor Results
Once risk management decisions have been made, they must be ___________ and __________
Implemented and Managed.
The success of the risk management process in this stage depends on the organization’s ability to:
C.L.O.P.
- PLAN
- ORGANIZE
- LEAD and
- CONTROL
In order to properly manage risks, it is important that they be _______and _______
Identified and Analyzed
what is the purpose of IDENTIFICATION
Involves recognizing losses which might possibly occur
what is the purpose of ANALYSIS
Involves estimating the significance of those possible losses
An organization faces many exposures to loss. What is a LOSS EXPOSURE?
Loss exposure is the CHANCE of FINANCIAL LOSS.
What three factors are used to classify Loss Exposures?
- The type of value exposed to loss.
- The peril causing the loss.
- The financial consequences of the loss.
The Four types of VALUES exposed to loss in most organizations
1) Property Values
2) Net Income Values
3) Liability Loss
4) Personnel Loss
1) Property Values
examples
Tangible Property - can be touched and has form and substance.
- real property
- debris removal
- undamaged property
- pair or set value
- going concern value
- demolition expense
- increased costs of construction
- personal property
2) Net Income Values
examples
Net income can be affected by decrease in revenue or increase in expenses. Decreases in revenues may result from:
- business interruption
- Contingent business interruption
- loss of profit on finished goods
- reduced rental income
- decreased collection of accounts receivable
Increase in expenses may result from:
- increased operating expenses
- increased rental expenses
- expediting costs
3) Liability Loss
examples
There is a Liability Loss exposure whenever there is a possibility of legal action taken against business. A legal action imposes the following costs to the organization:
- Costs to investigate and defend
- payment of an award for damages, or costs of corrective action
- the amount of any out-of-court settlement the business may decide to pay rather than go to trial
- the amount of any voluntary payments made by the business to gain the claimants goodwill or reduce the final amount of the settlement or verdict
4) Personnel Loss
examples
May be due to disability, resignation, retirement or death of personnel. the costs to the organization can be measured by:
- value of the employee services
- the costs of providing employee benefits
The two KEY FACTORS used to measure the financial consequences of a loss
1) Severity - the seriousness of loss
2) Frequency - likelihood of loss reoccurring
Identify the primary objective of RISK CONTROL
The primary objective of risk control is to reduce to frequency and severity of losses as much as possible with the resources available
establishing both ______ and ______ measures can help to reduce the severity of losses
PRE-LOSS and POST-LOSS
Describe what is meant by the above terms and provide examples of each (preloss and postloss)
Pre-loss measures are things which can be done before loss occurs. they involve steps taken to reduce the amount of the property, the number of persons, or other things of value that may suffer loss from a single event.
Pre-Loss Examples:
Property Values - safe storage of flammable materials to reduce fire intensity.
Net Income Values - reduce value of single shipment in a specific Conveyance
Liability Loss - establish maximum speeds company vehicles can be driven
Personnel Loss - limit number of executives travelling together in any one vehicle or aircraft.
POST-LOSS Examples
Focus on action taken AFTER A LOSS to reduce it’s severity.
- Property Values - installing affected fire detection and suppression equipment
- Net Income Values - expediting repairs quickly so business can continue
Liability Loss - developing a procedure plan to be followed by management and employees.
Personnel Loss - returning key personnel to work by allowing them to work part-time or work at home or on a part-time basis
Forecasting is an important step in determining what risk management techniques will provide the most cost-effective means to deal with risk. Discuss the types of forecasts that need to be made done before decision can be made…
Three FORECASTS which are necessary including:
1) Forecast of frequency and severity of losses that can be expected.
2) Forecast of the effects that various risk control and risk financing techniques may have in frequency, severity and predictability of these projected losses.
3) Forecast of the costs of these techniques.
Forecasting involves gathering and organizing data on past losses. using probability analysis and trend analysis, future losses can be predicted with some certainty.
the ability to survive an accidental loss is a _______ of all organizations
Fundamental goal
Risk Management involves the application of a ____________ to risks
Rational Process
risk management is primarily concerned with the use of insurance as a means of managing and organizations exposure to loss. true or false
FALSE
