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BU353 Midterm Review.docx

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Heather Graham

Midterm ReviewApplication QuestionsRisk pooling risk control spending deductible selection1Steps in the Risk Management Processa Identify Potential Losses b Evaluate Potential Lossesc Select the Appropriate Technique for Treating Loss Exposuresd Implement and Administer the Plane Monitor2 Types of Losses from Pure Risksa Direct Losses damage to assets injuryillness to employees liability claims and defence costsb Indirect Losses loss of normal profit net cash flow higher costs of fundsforegone investment bankruptcy costs3 Distinguish between Risk Control and Risk Financinga RiskLoss Control involves decisions to invest or forego resources to reduce expected losses loss preventionreduces the frequency of loss an extreme example is loss avoidance loss reductionreduces the severity of the loss pre or post lossb RiskLoss Financing refers to decisions about how to pay for losses if they occur retain costs of losses through reserves issuing debtequity or obtaining loans transfer cost of losses through insurance hedging such as futuresforwardsoptionsswaps4 Methods of Risk Identification checklists financial statements discussions with managers employee surveys insurance professionals risk management consultants5 Qualitative Analysis of Risk Control Strategies compare the benefits to the costs of the loss control strategy tradeoff cost of increased precautions vs benefit of reduced expected losses large losses can cause indirect losses lost profits cleanup costs cost of raising capital etc directing resources towards safety measures that are the most costeffective saves lives and
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