week 8 - risk Flashcards
risk management allows…
o allows informed decisions which affect tomorrows outcomes
o reduced costs
o improved business outcomes… DRP (Disaster Recovery Plan)
risk management theories
o Identifying and measuring the risk
o Avoiding the risk
o Controlling the risk
o Retaining the risk – risks retained must be funded (losses absorbed) e.g. some companies do not insure vehicles as the costs is considered too high
With buildings the property manager may recommend to the landlord to carry out insureance.
o Transferring the risk
Risks that cannot be avoided or internally funded must be transferred.
Transferring means:
Shifting the hazardous activity to professionals with satisfactory insurance
This could include hiring of extra security removal of dangerous materials and chemicals to a more suitable location.
o Monitoring decisions
Owner’s hazard insurance policies
o Landlord insurance o Property insurance o Flood insurance o Loss of income (following damage to structure) o Rental insurance o Worker’s compensation liability o Commercial car fleet o Commercial general liability
80% coninsurance
80% coinsurance
(amount of insurance/ 80% of what it should be insured for X partial loss = insurer payment):
o Critical and misunderstood
Owner/manager responsible for maintaining 80% insurance
Annual review of construction costs and inflation!!
Example: If loss of $40,000 on a $100,000 building insured for $80,000 with 80% co-insurance. Insurer will pay full $40,000
But, with same 80% insurance, if building has increased through inflation to $200,000, insurer will only pay out according to formula
Formula:
Amount of insurance X Partial = Insurer
80% of what it should be Loss Payment
insured for
$80,000 x $40,000 = $20,000 insurer pay!
$160,000(80% of $200,000)
If total loss, would be paid policy limit of $80,000, but if property now worth $200,000, loss to owner = $120,000
managing the internal environment
o Internal environment e.g. mould as a result of damp or poor ventilation
o Sick building syndrome – ventilation
o Building related illnesses:
o Caused by toxic substances or pathogens
aspestos - who’s responsibility and what to do
It is the duty of the landlord and of the tenant to:
Identify if asbestos is present and to conduct a risk assessment
Encapsulation: leaves asbestos in place (enclosed to permanently immobilise fibres)
Enclosure: artight barrier impermeable between asbestos and rest of space
Removal: expensive and must be done by qualified contractors
o Review and revise the risk assessment at least every five years
o Provide a copy of the risk assessment to any new tenant
o Adjacent occupiers must be notified of asbestos removal activites
business benefits
o A safe working envornment for all staff, visitors and customers
o Compliance obligations are well
increase productivity
reduced fees on employee sick days, legal fees and upkeep
identification of risk
Analysis- Strategy- Process- Assessment- Control- Evaluate- Review
Requires a thorough understanding of the nature of the asset and survey (inspection)
May require expert assistance
This is not just about safety but also equipment life to allow for future planned capital expenditure
Documents the audit, plans made, priorities for addressing identifies problems created
For example, what danger to life is there in the event of a storm?
explain avoidance of risk
After initial assessment the property manager now considers which risks can avoided by planned action
– Eg. if combustible materials/chemicals are used in production can combustible material from the built environment be removed cost effectively?
Some risk are unavoidable. Eg. storms, flood etc.. However are there parts of the building that need to be better attached to counter high winds. Or should the electrical system be better protected against moisture?
explain controlling risks
Some risks cannot be avoided
Must consider reduction of loss strategies (generally measured in terms of $$’s and human suffering)
Loss control can reduce insurance premiums
– Examples include: back up files off premises, increase fire sprinkler system to offset levels of combustible materials, enhanced security services/ surveillance, emergency plans, crisis response plans
retaining the risk
Risks retained must be funded (losses absorbed)
Eg.
- some companies do not insure vehicles as the cost is considered too high. Therefore $$’s must be allocated in the event of claims.
With buildings the property manager may recommend to the landlord not to carry insurance with low levels of excess.
Doing this reduces insurance cost and the landlord retains risk for small damages
transferring the risk
Risks that cannot be avoided or internally
funded must be transferred.
Transferring means:
Shifting the hazardous activity to professionals with satisfactory insurance.
This could include hiring of extra security, removal of dangerous materials and chemicals to a more suitable location.
Contractually shifting the legal liability. This could mean outsourcing certain activities such as asbestos removal. Rarely totally transfers risk
Transferring the risk to insurers, either wholly or partly. Can be complex and often not full cover. Eg. flood if in flood prone area. Many forms and types of insurance policies available. A special policy type can be negotiated in many cases.
monitoring the risk
This requires ongoing and continual assessment
Should be a formal process to demonstrate due diligence in the event of an incident
Records must be kept and assets may need to be regularly valued
explain risk management
Duty of Care on Owners and Managers continues to grow.
It is not enough to say the Tenant is responsible under the Lease.
Regular inspections of Property & Premises for compliance and risks.
Asbestos-what to do (see later)
Emergency Procedures & Warden Training
Fire
Bomb Threat
White powder (Anthrax)
SARS / Avian Influenza / Bird Flu/ Swine Flu
Medical emergency
Contractors - Inductions / Work Method Statements / Risk Assessments / Services Failure Procedures / Situational Training
Environmental audits
Asset Liability audits
Site Specific Risk Audits - Who would have thought that the risk of terrorism was going to present serious management issues prior to Sept-11?
business benefits
A safe working environment for all staff, visitors & customers
Compliance obligations are well managed:
Controls & testing regimes are in place
Mitigation strategies are maintained
Regulatory requirements are met
Ensure operational “up-time” for the business
Protect the business reputation
allocating cost of risk management between manager and owner
Limit management responsibilities Bid bonds – performance bonds Named additional insured Indemnity clause - Can protect manager - Additional wording
air quality issues
Sick building syndrome
Symptoms go away upon leaving the building
Building-related illness
Clinically diagnosed condition
Caused by toxic substances or pathogens
managing hazard control
Occupational Safety and Health Administration (OSHA)
Hazard warnings
Employee information and training
Written Hazard Communication Program
disaster risk planning management
look at slide 44
You are the property manager of a high rise premium office block in the CBD.
An electrical item has “shorted out” and caused fire that has caused damage to several floors of the property.
i. Outline the steps that should/could have been taken to prevent an event like this.
ii. Discuss how a DRP or risk management plan would minimise loss and either maintain business continuity or resume as soon
prevention:
Ensure a building is safe for use and occupation
All electrical compliance certificates obtained
All the fire safety requirements passed
Fire alarms installed
Identify hazards and breakdowns of any equipment
Inspections –
Routine, general and/or detailed with the aim to prevent problems occurring in the future,
safety checks, tagging of checked equipment, mobile equipment checks, electrical checks etc
Use a checklists to tick all the required items!
slide pp44
risk management plan or disaster recovery plan
Risk identification/assessment
Detection of problem,
Sounding alarm
Contact tenants, landlord, insurance company
Prevention
Monitoring all equipment in use, maintenance etc,
Preventative inspections and maintenance
Preparedness
Fire wardens, fire safety drills, fire protection systems
Must be inspected on a regular basis
Recovery Containment of losses, minimise losses. Advise tenants what is being done; what damage there is; how it will be managed ie repair, reinstatement etc Business continuity Return the office block or non-impacted floors back to functionality asap Minimizes losses from business interruptions.
Coinsurance policies are used to reduce the cost of insurance with the insured (owner/manager) taking the responsibility for maintaining insurance to 80% of replacement or actual value (see p559 Kyle Ch 16)
If we have a $200,000 building insured for $160,000 with 80% coinsurance, the premium will be similar to straight insurance of $100,000.
Outline how an 80% coinsurance policy works. What are the advantages/disadvantages
ii. Outline what happens in the event that the building has appreciated to $400,000 over time (without change of value by owner) and there is a partial loss of $100,000; if there is total loss?
The policy will cover full cost as long as:
Loss is within the 80% of the property market value
Policy has been kept at 80% in line with the increasing property market value
The owner will need to pay
if damage costs over the 80% of the market value
if there has been no consideration of inflation and increasing property values - the insured amount may even be less than the original amount
Constant review required!
Background:
(Through inflation) Property value increase from $200k to $400k
If partial loss of $100,000
Insurer will only pay $50,000???? WHY??? Isn’t it insured for 80% of $200k???
Owner has underinsured
Owner has failed to keep track of the increasing value and/or the impact of inflation on the building value.
The insurer will only pay out 80% of the actual/current value of the building,
In this case the owner of the building will therefore have a loss of $50,000 (REFER to the calculation in lecture 8 and next slide)
Equation below outlines why this is the case
Amount of insurance/80% of what it should be insured X Partial Loss = Insurer Payment
$160,000/ 320,000 * 100,000 = $50,000
Payment from the insurer and a $50,000 loss for the owner.
If there is a total loss and the owner has failed to keep the building insured for its total worth they will only be able to claim the $160,000 (total value that it is insured) and therefore suffer a loss of $240,000!!!
Lead paint, Asbestos and other hazardous substances require special management and clean up/removal.
Outline the 4 categories of Potentially Responsible Parties and the consequences or liability for clean-up costs.
The present owner or operator of a facility contaminated by hazardous substances or wastes = PRESENT OWNER –
Glenvill/Alpha Partners
Any person who, at the time of disposal of hazardous substances or hazardous wastes, owned or operated a facility at which the hazardous substance/waste was disposed = PAST OWNER – Aust Paper Mills (APM - AMCOR)
Any person who generates hazardous wastes/substances or has arranged for another person to dispose of etc. the waste. = PERPETRATOR (APM)
Any person who accepts hazards substances/wastes for transport to disposal or treatment facilities = ACCEPTOR (waste disposal plant, could also be GDH – contractors employed to do clean-up)
CONSEQUENCES:
The present owner/operator will be liable –
Intent or fault is not an element, the act of owner is sufficient!
Joint and several liability –
All persons have complete responsibility for the entire loss, damage or expense even if they did not own the site or participate
The government may recover the full cost of clean-up from the present owner/operator,
The innocent owner or innocent purchaser
A defence that an owner may use against a claim for liability
If damage were Act of God, an act of war or omission by a 3rd party.
how to deal with aspestos
Asbestos
Identify if asbestos is present and to conduct a risk assessment.
Encapsulation – leaves asbestos in place (enclosed to permanently immobilise fibres)
Enclosure – airtight barrier, impermeable between asbestos and rest of space
Removal – expensive and must be done by qualified contractors
Review and revise the risk assessment at least every five years.
Provide a copy of the risk assessment to any new tenant.
Adjacent occupiers must be notified of asbestos removal activities.
how to deal with mold
Mould
Have to fix the underlying problem!
- Is it structural leaking – roof leaking, bathroom fittings?
- Is it due a dryer that is not exhaust vented?
is
Surface mould – easy clean up with vinegar, bleach
Mould that has invaded porous materials – difficult and needs professional removal
PM/landlord responsible for leasing a property that is in a clean state of repair
Responsible for structural repairs
Responsible for remediating damages
why worry about mould and who is responsible
Why worry about a bit of mould?
Moulds can give off toxic chemicals, called mycotoxins – possibly resulting in hypersensitivity or allergic reactions, asthma and flu-like symptoms
Who is responsible? For PM/Landlord see previous slide
Tenants –
Tenants remove/clean up mould in bathrooms, report mould from structural leaks
Report to PM about leaks etc or may be responsible
Keep records/photos of problem
Keep details of when reported etc
If caused by tenants actions – tenants must repair/reinstate
If building uninhabitable or problem not fixed tenant can seek to terminate lease early
List the key features that need to be implemented in building and programming that achieve the four goals of a life safety and security program
Four goals of any program Preventing emergencies or security breaches Detecting a breach early Containing or confining the damage Counteracting the damage
Design a life safety program utilizing
Personnel
Staff Training with appointed duties and emergency role
Equipment
Building System: Monitor, Exit Point, Smoke Detector, Alarm…etc.
Tenant Equipment: Material need to be low spread rating
Procedures
Regular in-house checking
Hazard Detection
Scenario Planning on potential disaster
The alternative ways Susan can address the crime issue?
Increase lighting in the parking area
Check access to buildings after hours –
Self-locking doors,
Video-surveillance of the building and grounds
Increase or install alarms, install additional cameras etc
Hire security to patrol the site,
Have onsite security after hours (require increased funds from tenants into common fund/common property budget)
The alternative ways Susan can address the crime issue
Ask police to increase their patrols
Notify tenants and ask for increased awareness
Increased care with locking their business
Start a Neighbourhood watch type program
Request business to lock valuables away
Elements in a flood emergency producer guide
Implement procedures for any potential disaster (Flood, Storm, Earthquake…etc)
Generic Requirement:
Internal procedures – in-house building management
Hazard detection and /or emergency evacuation for fire, earthquake
Emergency supplies – if space and budget permit stock pile water, 72 hours food supply
Evacuation drills
Generic Requirement:
Disaster planning
offsite command post to manage a disaster; alternative electricity supply such as generators
Communication with tenants and media
Restoration operations - business continuity ASAP
Reconstruction, manage disaster aftershocks – ie no electricity after 9/11, earthquakes in Christchurch NZ – loss of power for 2 weeks, current Florida – 5 million people without power
For Tenants specifically concerned about flooding
Call a special meeting of tenants to discuss planning and what to do in the event of a flood,
Usually have warning if a river is going to burst its banks or flood levels max out.
Have plans to remove lower level assets to higher areas before flood peak levels, consider flood insurance.
Publish a flood guide for tenants
