respostas a exame applicationofrmnovember2010questionsandanswers

8/3/2019 Respostas a Exame ApplicationofRMNovember2010QuestionsandAnswers

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The Institute of Risk Management

International Certificate in Risk Management

Application of Risk Management Examination

November 2010

GUIDELINE ANSWERS


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Application of Risk Management

Candidates must answer FOUR questions from six. All questions carry equal marks.

Question 1

You are responsible for risk management in an organisation of your choice.

(i) Identify and briefly describe 2 significant risks under each heading of the FIRM RiskScorecard

(16 marks)

(ii) Write a memo to your Chief Executive describing how you would manage thereputational risks that you have identified.

(9 marks)

Answer 1

(i) (see page 159)As the risk manager for a company that owns several casinos, I suggest that the risks under eachheading of the FIRM Risk Scorecard will be as follows:

Financial riskso Inadequate internal financial control environment to prevent fraud and control money-

laundering;o Inadequate funds to meet a historical and future liabilities, including pensions and meet

future anticipated liabilities.

Infrastructure risks

o Insufficient people resources, skills and availability, including concerns about cost oftalent;

o Information technology infrastructure has insufficient resilience and inadequate dataprotection.

Reputational riskso Poor public perception of the industry sector and/or potential for damage to the brand of

the organisation;o Insufficient attention to ethics / corporate social responsibility / social environmental and

ethical standards.

Marketplace riskso Insufficient revenue generation in the marketplace and inadequate return on investment

achieved;o Highly competitive marketplace with aggressive competitors and increasing customer

expectations.

(ii) (see page 270)

The organisation faces significant reputational risks, because of the industry sector and generallypoor public perception of the casino sector. Also, there are concerns about the potential formoney laundering. In addition, casinos need to be aware of ethical considerations, especially inrelation to the potential for individual customers to lose large sums of money that they may not beable to afford.

It is important for the company to have a robust system in place for the management ofreputational risks and the protection of the company brand. In order to achieve this, I propose thatthe responsibility for protection of the brand and oversight of ethical standards is allocated to amain board director. Also, I recommend that an audit of ethical standards is undertaken and an

Ethics Committee is established.


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I propose that the Ethics Committee is chaired by the main board member responsible, withmembership that includes the chief operating officer, the compliance manager, the head ofinternal audit and the group risk manager. The Ethics Committee should be responsible forestablishing reputational strategy, training and implementation of staff and auditing the standardsof ethical behaviour against best practice in the casino sector.

Question 2

You are the risk manager for a multi site international manufacturing company and havedecided to map the risk maturity of the company.

(i) Describe the 4Ns or some other approach to the analysis of the level of risk maturityof the company.

(10 marks)

(ii) Identify 5 benefits of achieving a greater level of risk maturity in the company.(5 marks)

(iii) Briefly describe 5 actions that would be required to improve the level of risk maturity.

(10 marks)

Answer 2

(i) (see page 102)

The 4Ns approach to risk maturity describes the following levels:o Naive organisations are not aware of the need for to manage risks or do not recognise

the value of a structured approach to dealing with uncertainty;o Novice organisations are aware of potential benefits of managing risk, but have not

implemented risk processes effectively;o Normalised organisations have built the management of risk into routine business

processes and have implemented risk management throughout the organisation;o Natural organisations have a risk aware culture with a proactive approach to risk

management in all activities with a consideration of risk inherent in all of routineprocesses.

(ii) (see page 101)

Overall, if an organisation has evaluated the level of risk majority in the company, then a muchmore risk aware culture will be developed and this will produce the following specific benefits:

o Greater awareness of the impact of risks;o Identification of employee training needs;o Improved reporting of near misses;o Greater awareness of the importance of controls;o Increased involvement in risk management.

(iii) (see page 103)

The actions that would be required in order to improve risk maturity in the company would includethe following:

o Better communication of the risks faced by the organisation;o Enhanced training for staff and management;o Better established procedures that require consideration of risks;o

Increased involvement of staff in the decisions concerning the management of risks;o Clear understanding of the roles and responsibilities for risk management throughout the

organisation.


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Question 3

You are the risk manager of a laundry company that provides linen washing services tothe hotel and restaurant trade.

(i) Write a memo to the Chief Executive explaining your proposals for a loss controlinitiative.(11 marks)

(ii) List 2 possible actions under each of the following headings: loss prevention,damage limitation and cost containment.

(6 marks)

(iii) Describe 4 topics that you would include in a loss control training programme forstaff.

(8 marks)

Answer 3

(i) (see page 148)

The company are suffering serious losses in relation to a number of hazard risks that could bebetter managed. Losses result from machinery breakdown, loss of customer property, damage tocustomer property, inadequate washing of customer linen, accidents at work, employee absence,as well as delivery van accidents.

There is considerable scope to reduce these losses and thereby reduce operating costs, increaseefficiency, reduce customer complaints and add to customer retention and overall profitability.Accordingly, I propose that a loss control initiative is undertaken in the company.

This loss control initiative will focus on the need to prevent losses, l imit damage when incidentsoccur and contain costs following property damage and / or personal injury accidents.

I recommend that each location is required to appoint a loss control coordinator. I will arrangetraining courses so that each location can develop its own loss control action plan based its ownloss performance. Targets can then be set for loss reduction and measurable loss controlprograms implemented.

I estimate that there is the potential to reduce costs associated with these losses by 20% over thenext two years.

(ii) (see page 151)

Loss preventiono

Defensive driver training courses for van drivers;o Enhanced maintenance scheme for laundry washing machines.

Damage limitationo Improved customer complaints procedures;o Improved procedures for reporting linen losses to customers.

Cost containmento Control of a vehicle repair costs;o Initiative to reduce staff absence rates.


Explanation of the impact of losses on the overall efficiency and profitability of the company;

Details of the specific loss experience of the location or activity relevant to the delegates;

Importance of good quality service to customers to increase customer satisfaction andretention.

Scope for achieving reduction in losses and the role that can be played by individualmembers of staff (delegates)


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Question 4

The board of a legal company (or other professional advice partnership of your choice) isplanning a business continuity review.

(i) Write a memo to the managing partner explaining the importance of businesscontinuity planning.(10 marks)

(ii) Explain the 3 main reasons for undertaking a business impact analysis for thecompany.

(6 marks)

(iii) Identify 3 critical business functions that might be identified by the analysis andbriefly explain their importance.

(9 marks)

Answer 4

(i) (see page 163)

There are several sources of disruption that can affect the partnership. For example, disruptionmay be caused by a computer breakdown, absence of key staff or inability to gain access to themain office. When a significant disruption to normal efficient operations takes place, thepartnership will need to reinstate the damaged item, such as the IT system or (in the case of fireor flood), the building.

Whatever the cause of disruption to normal efficient operation, it is essential that the businesscontinues in operation and stakeholders do not suffer any disruption to service. This will includethe provision of professional advice to clients, payment to staff and contractors, as well as the

ability to maintain good public relations.

Accordingly, business continuity planning is vitally important, but it is an area where we haveinsufficient formalised procedures. Adequate procedures include arrangements for taking controlof the crisis, arrangements for communicating with staff, clients and other persons affected by thedisruption, as well as arrangements for restoration of the business facility that has failed.

(ii) (see page 168)

The business impact analysis will involve an evaluation that identifies business criticalcomponents, so that:

o Mission-critical activities and the required recovery time in the event of disruption areconfirmed;

o Potential for impact and resource requirements for recovery within the agreed timescaleare identified;

o Whether the impact is within the risk appetite of the partnership will be determined.


It is probable that the following three business functions will be found to be critical during abusiness impact analysis:

o Payment of the salaries to staff and payment of the invoices of critical suppliers;o Provision of essential professional support to the most important and critical clients;o Arrangements for communicating with the regulators, press and other organisations that

require an accurate and up-to-date explanation of the current position.


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Question 5

You are the risk manager for a company of your choice.

(i) Describe 4 examples of how captive insurance can help reduce insurance costs.

(12 marks)

(ii) Describe 3 compliance difficulties facing captive insurance companies that arebased in offshore domiciles.

(6 marks)

(iii) Apart from compliance issues, explain 3 other disadvantages of having a captiveinsurance company.

(7 marks)

Answer 5

(i) (see page 284)The organisation is a multinational food production company with manufacturing facilities in severalcountries. The captive insurance company has been part of the insurers arrangements for sometime, both in relation to property and casualty risks. The captive insurance company helps reduceoverall insurance costs in the following ways:

Savings can be achieved in overall insurance cost because lower premiums are set by thecaptive insurance company;

The captive insurance company can gain access to reinsurance markets, where premium ratesand risk capacity can be favourable;

By being exposed to the cost of insurance claims, a greater risk awareness and greater concernabout loss control can be achieved;

Greater insurance cover can be offered by the captive insurance company than is available in the

commercial market.

(ii) (see page 282)

When an insurance company is licensed to write business in a certain territory, this is known asadmitted insurance. A captive insurance company in an offshore domicile is unlikely to belicensed outside that domicile, and so will be writing non-admitted insurance.

Compliance difficulties arise because of the non-admitted nature of insurance written by captiveinsurance companies. This non-admitted insurance can give rise to difficulties in relation to:

o Calculation and payment of insurance premium tax ;o Issue of valid insurance policies; ando Difficulty in paying claims in a tax efficient manner.


Captive insurance company will be exposed to insurance claims that would otherwise have beenpaid by the commercial insurance market;

The parent organisation has to allocate capital to ensure adequate solvency of the captiveinsurance company;

Significant administrative costs, time and effort can be involved in the management of the captiveby parent head office personnel;


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Question 6

You are the risk manager for an organisation of your choice.

(i) Identify and describe 3 significant risks faced by the organisation you have selected.

(9 marks)

(ii) Identify 2 suitable controls for each of these significant risks.(6 marks)

(iii) Explain how the planning-implementing-measuring-learning approach could be usedto improve controls.

(10 marks)

Answer 6

(i) (see pages 145 and 247)As the risk manager for a hotel company, there are a number of significant risks that could be facedby the company. The following will be significant risks faced by the owner of a chain of hotels:

There may be significant health and safety issues associated with the operation of the hotel,including food hygiene, fire safety and other health and safety risks, such as slips and trips;

There may be a shortage of suitable skilled and experienced staff to undertake a wide range ofactivities that are required in running a hotel, including cleaning, catering, back-office and front ofhouse duties;

Competitor operations may be established in the vicinity that offer equivalent hotelaccommodation but with attractive extras and a more cost effective price.

(ii) (see page 275)

Health and safetyo Enhanced maintenance procedureso Improved health and safety training

Skilled and experienced staffo Recruitment of staff from outside the areao Attractive pay, staff benefits and employment conditions

Competitor activitieso Introduce customer loyalty schemeso Match competitor publicity and special offers


Planning controls requires identification of the intended benefits of the control, establishing thescope and nature of the intended control and developing the roles and responsibilities for

implementing and monitoring performance;Implementing controls will be based on undertaking suitable risk assessments, establishing thelevel of risk performance required to be achieved by the control and determining the risk appetiteand risk tolerance levels for the hazard under consideration;

Measuring performance will be designed to ensure the cost effectiveness of the controls and anyfurther proposed improvements. Measuring performance will also determine the effectiveness ofthe control and whether it delivers efficient or cost effective control;

Learning from controls will require monitoring and review of risk performance indicators andreporting on risk performance to the appropriate department, function and / or committee.

END OF EXAMINATION

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