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TECH 436 Chapter 1 1. Risk management may be defined as an administrative or managerial process and as a decision process. (a) Identify the elements in risk management as: (1) an administrative of a managerial process. (2) a decision process. (b) Construct the risk management matrix, and relate this matrix to risk management as: (1) an administrative or a managerial process. (2) a decision process. (c) Give a definition of risk management that incorporates both its administrative or managerial and its decision aspects. 2. Identify two specific losses and for each, describe: (a) the values subject to loss. (b) the peril causing the loss. (c) the entity suffering the loss. (d) the financial consequences of the loss. 3. Describe, and give two examples of, each of the following types of loss exposures: (a) property loss (b) net income loss (c) liability loss (d) personnel loss 4. Describe, and briefly explain the appropriate uses of each of the following methods of identifying loss exposures: (a) survey/questionnaires (b) financial statements (c) organizational records and documents (d) flowcharts (e) personal inspections (f) experts within and outside the organization 5. (a) Distinguish among the risk control techniques of exposure avoidance, loss prevention, and loss reduction: (b) With respect to fire damage to real property, give an example of: (1) exposure avoidance - (2) loss reduction - (3) loss prevention - 6. Distinguish between duplication and separation as a means of segregation of exposures. Your answer should include examples of duplication and an example of separation. 7. All techniques for risk financing can be categorized as either retention or transfer. What is the basic distinction between retention and transfer as a means of risk financing? TECH 436 Chapter 1 8. The owner of a building inserts into its contract with the firm that washes the exterior windows of the building each month a clause under which the window cleaner agrees to reimburse the building owner for any claims the building owner may have to pay because of damage or injury the window cleaner's activities may cause to the property or persons in the parking lot surrounding the building. Explain whether this agreement constitutes contractual transfer for risk control or for risk financing. 9. (a) Give an example of: (1) contractual transfer for risk control (2) contractual transfer for risk financing (b) Contrast contractual transfer for risk control with contractual transfer for risk financing in terms of (1) the promise made by the transferee (2) on whom the loss that is the subject of the contract falls if the transferee fails to fulfill this promise 10. Briefly describe each of the following risk financing techniques and give one example of a loss exposure a manufacturer of air rifles might reasonably finance through each technique. (a) current expensing of losses (b) paying losses through a funded reserve (c) paying losses through an unfunded reserve (d) paying losses through borrowed funds (e) use of an affiliated ("captive") insurer (f) use of an unaffiliated ("commercial") insurer . 11. Both contractual transfer for risk financing (typified by the hold harmless agreement) and insurance policies are contracts in which one party agrees to pay money to, or on behalf of, another party when that second party suffers a specified loss. (a) Describe the fundamental difference between contractual transfer for risk financing (as this term is used in the ARM Program) and commercial insurance contracts. (b) Describe three shared characteristics of both contractual transfers for risk financing and commercial insurance. 12. Distinguish between technical decisions and managerial decisions relating to implementation of a particular risk management technique. Give three examples of these two types of decisions. 13. Briefly describe, and give one example of, each of the three elements in the monitoring (control) step in the risk management decision process. 14. With respect to a risk control program to prevent hand injuries to assembly line employees using power tools, give two examples of: (a) an activity standard for evaluating the performance of a risk management department, TECH 436 Chapter 1 (b) a results standard for evaluating the performance of a risk management department. 15. Describe, and give one example of, each of the following costs of risk to an organization. (a) damage to property or injury to persons. (b) deterrence effects of uncertainty. (c) costs of managing exposures to loss.
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