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16 Cards in this Set
- Front
- Back
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Risk identification |
- first and most critical step in rm process - key is systematic and continuous process - best-managed firms engage employees in their risk management activities (surveys, communication w/ management)
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Critical dependency
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- ties together pure risk exposures and ERM exposures - element of an entity's operations that has capacity to interrupt entire production process
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How to identify risk (internal and external info) |
- Internal info: analysis of financial statements, communication w/ managers, surveys administered within organization, onsite inspection - external info: risk consultants, agents and brokers, rm trade associations |
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What to identify |
- internal/external risks- internal controlled but external hard to control (computer hacking, terrorism, competition exposing firms weaknesses) - pure/speculative- managers should be more tolerant of negative outcomes of speculative b/c all firms have exposure to this - direct losses - indirect losses - key personnel- vital to organization - operations |
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How to identify (internal) |
- balance sheet - income statement - other records - checklists - flow charts - questionnaires |
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Financial Scope of losses? Direct vs. Indirect |
- direct- financial loss immediately resulting from damage, destruction, loss of use, liability claim - indirect- results as consequence of direct loss, causes business interruption, measured by reduction in revenues and increased expenses - business interruption- time when firm suspends its normal operations and continues until firm is able to resume its business as usual |
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Pure Risks ( or Hazard Risks) |
- Property - Liability - Human Resource - Indirect
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Property Risks |
- Tangible: - real property: real estate, vehicles, planes; - business property- inventory, equipment, supples, etc. - Intangible (important to protect): patents, R & D, human capital, reputation, brand awareness, - Damage to property of others- supply chains interconnected through joint ventures, disruption or outright failure at firm affects other firms in supply chain - risk managers must protect own organizations, as well as avoid supply chain disruptions |
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Liability risks - Tort liability, crime, breach of contract |
- tort- civil wrongs, unreasonable conduct toward another person - crimes- wrongs against society that are punishable by fines or imprisonment - breach of contract- failure, without legal excuse, to perform contractual duties
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Negligence |
- something a reasonable person would not do, that results directly in some injury to another person |
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Things plaintiff must prove to establish case of negligence |
- legal duty- defendant owed legal duty to plaintiff - breach of legal duty- failed to satisfy legal duty - injury or damage- proof of bodily or property damage - proximate cause- show that injury or damage would have not occurred if it weren't for defendants failure to satisfy legal duty |
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Types of damage |
- Compensatory: restore victim to same financial condition; special: economic; general: noneconomic - Punitive: punish defendants for outrageously offensive acts, usually imply gross negligence (defendant willfully disregarded potential harm inflicted upon plaintiff; serious carelessness)
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Defenses in negligence suits |
- Contributory: both negligent, neither collect (say plaintiff's negligence also contributed to injury) - Assumption of risk: knowingly accepted risk |
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Examples of loss sources
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- breach of contract - bodily or personal injury - intentional damage to reputation - wrongful hiring, firing, sexual harassment, invasion of privacy, age discrimination - vicarious liability - products, environmental, worker's comp
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Human resource risk |
- workers comp - employee benefits programs - key employee who is difficult to replace- larger firms often less vulnerable than small firms b/c of succession planning (internal employees replace via promotions) |
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ERM Risks (excluding hazard/pure risks) |
- financial- inflation, currency exchange, credit risk, price risks (input and output) - operational- supply and distribution chains: prevent firm from conducting normal scope of operations - strategic- product development, brand value, reputation, media images |
