Risk management study guide (quiz 2) PDF

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helpful for studying for quiz 2 which covers topics 2 and 3. Mostly definition based but will also lead you down the right path for short answer questions...

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Handlers of RM before RM Dept. Finance dept - small org risk manager - med org cro - large org who coined the term Risk Management? Prof. Wayne Snider of Temple University STEPS IN THE RM PROCESS 1. Identify the Exposure to Loss*** 2. Evaluate the Exposure to Loss 3. Identify Possible Alternatives 4. Select from Among the Alternatives 5. Implementation of the Chosen Option 6. Periodically Re-Evaluate the Chosen Strategies what is a loss exposure? possibility of a financial loss that a particular entity faces as the result of a peril striking a thing of value (when shit happens) How to identify loss exposures? 1. inspections of facilities (walk-arounds) 2. Contract analysis 3. analyze past information (ineffective in regards to dynamic risk) 4. share loss information with other similar firms (benchmark) 5. checklists/standardized surveys from insurance companies 6. the flow chart approach 7. communicate with employees/managers 8. the financial statement approach 4 types/categories of loss exposure 1. property 2. net income 3. personnel 4. liability Property real property - land, building personal property - tangible or intangible (IP) Property Loss Exposure when loss to a property is a loss to the owner (firm or individual) When is Interest in Property Supportable? 1. Ownership Interest (present or future) 2. Buyers and Sellers (FOB shipping) 3. Bailee Interest 4. Tenant Interest (continued use interest) bailee An entity who receives property from another under contract of a bailment bailment interest for the bailee is legal liability to return the property or pay to replace it tenancy duty to return property in reasonable condition Business Interruption when the normal productive process of a firm is interrupted Net income loss exposure possibility of a secondary loss (the business interruption) that occurs as a result of a primary loss, through increasing expense or/and decreasing revenue Personnel loss exposure Risk faced by a business due to the death, disability, retirement or resignation of a key employee (leading the loss of income) Lawsuits are the result of: 1. Bad behavior 2. Contract breach bad behavior is classified as: 1. Intentional (assault, libel, slander) 2. Unintentional (negligence) legal liability is established when: 1. there was negligence

2. there was actual damage negligence failure of a person to exercise the proper degree of care Absolute/Strict Liability liability is imposed regardless of negligence or fault general damages compensate for intangible losses (pain and suffering) punitive damages jury decides how much money to fine an entity as a punishment special damages form of compensatory damages that awards a sum of money for specific, identifiable expenses (injury, medical expenses) assumption of risk one willingly accepts dangers involved with an activity comparative/contributory negligence plaintiff was partially to blame for what happened res ipsa loquitur (the thing speaks for itself) defendant is assumed guilty and must prove innocence requirements for Res Ipsa Loquitor to apply 1. the loss wouldn't have occurred if not for negligence 2. defendant exclusively control the tool/equipment that causes the loss 3. the injured party does not contribute to the loss whatsoever vicarious liability one person becomes legally liable for the negligence of another (employers are responsible for behavior of employees in the scope of employment) Joint and Several Liability when negligence of two or more parties contributes to injury or damage of another (the injured party can recover the whole of compensation from any negligent party no matter how negligent they were) product liability the legal obligation of sellers to pay damages to individuals who are injured by defective or unsafe products (lack of warning or negligently made) premises liability the liability of landlords and tenants to persons injured on their premises animal liability You are always liable for your pets (exotic and killer dogs) TRM Silo Approach -property/liability pure risks - Risk Manager -Personnel risks - Human Resources -operational risks - COO -financial risks - CFO -strategic risks - CEO/board of directors ERM Approach manage risk and seize opportunities to manage an enterprise...