quick paper

 

Risk Management

Student’s Name:

Institution:

1st March, 2017

Risk Management

In reference to the Risk Management article by Dr.James Kallman, he stated that create a risk management course is a vital precondition towards measuring risk. Although it’s important for one to have a clear understanding of the organization’s goals and procedures before embarking on the risk management techniques. They should undertake risk analysis which is done in the following ways:

Foremost, they should have a clear comprehension of the type of skills to be measured. The risks can be classified as operational, economic or strategic. Operational risks are the conventional business and hazard risks that have occurred for many years. Economic risks are the political and financial conditions that have originated from the micro and macroeconomic measures .examples are interest rat3es risk, exchange rate risk convertible and ransom risk. By sorting out the risks, it enables us to understand the linked perils and hazards (Anderson, 2005).

The next step is setting up the parameters that that will define clearly each risk and the associated characteristics. The risks, which can be categorized into either pure or speculative risks, can be further defined by relating the source of the transformation in subject’s value. For instance, changes in pure risks are caused by perils, while changes in speculative risks are caused by opportunities.

He argued that the rationale for risk management is to assist others create value. This purpose can be achieved by either initiating safety measures to save lives or by purchasing insurance to compensate for losses. He proposed the use of the risk management solution tree, which is a visual illustration of the options on hand to create value as the most efficient way to view the range of all the risk management solutions. The tree shows the various solutions that can be used.

He proposed the following risk management techniques: for both the threats and opportunities, the foremost decision is to either accept or avoid the situation. By taking the avoidance option ,it results in the firm not having the possibility of any gain or losses occurring .acceptance is a suitable option if the condition falls within the firms risk tolerance or appetite.

Once the subject is acknowledged, the firm now decides on whether to accept the situation the same as it is or to spend the available scarce resources on controlling the risk. If the risks variance, probability, timing and impact are entirely within the acceptable ranges of the organization, then the best decision is “do no control.” if one of these constraints is not within the preferred range, then it’s wise to spend scarce resources to get the constraints into that variety.

On the contrary, when a pure risk has occurred, if the probability of a loss is very high, it’s wise to spend resources to prevent the loss from occurring .On the other hand, if the extent of the loss is to immense , then one should undertake measures to reduce the possibility of the loss occurrence.

Lastly, he pointed out that regardless of our greatest efforts at creating the preferred outcome, probability and timing, the risk management must one way or another be financed. These are the three basic costs of the risks to be financed; risk control, risk management administration, and loss financing. Risk control costs comprise of advertising, promotions, reduction projects and prevention. Risk management administration measures include overhead costs for operation of the risk management department e.g. rent, salaries, supplies and consulting fees. The loss financing costs include transfer programs and retention (Hopkin, 2013).

He emphasized on loss prevention projects as the most important use of the risk management budget. Through d3ecreasing the likelihood of the occurrence of the loss, reducing loss financing and the administration costs ,the preferred results are more stable as well as the organization is confident of achieving the desired goals.

According to Riscario, in Promoting Insurance Literacy in Canada, since 2006, he identified the following four risk management techniques:

· Risk avoidance: it’s the elimination of risk at all costs. For instance dropping a hazardous product.

· Loss control: it effected through loss prevention I.e. Reducing the frequency of the loss, loss reduction i.e. reducing the severity and impact on the fiancés, and taking safety measures, segregating, pooling and diversifying (Crouhy, Galai & Mark, 2010).

· Risk retention; financing some or else all the losses by oneself for instance the case of health insurance has deductibles and waiting, buying long term or short term disability.

· Risk transfers: it can be affected in two ways; noninsurance where the relatives help out and insurance where one undertakes an insurance policy, i.e a formal arrangement between one an insurer.

In both cases, they vied chances of loss but no chances of gain for the pure risks, and chances of loss or gain for the speculative risk. Both proposed the use of risk avoidance, loss control, risk retention and risk transfer as measures for managing risks. However Kallman proposed the use of risk management administration and the use of the risk management solution tree, which is a visual illustration of the options on hand to create value as the most efficient way to view the range of all the risk management solutions, which was not the case for Riscario.

In conclusion, Kallman stated that “prevention is worth a pound of insurance”. Thus regarded prevention as a loss control project not only preserves assets and saves lives but also saves the costs of financing risks. Controlling the probability of the losses is a vital step in creating the most wanted value and achieving goals.

References

Anderson, D. R. (2005). Corporate survival: The critical importance of sustainability risk management. Lincoln, NE: iUniverse.

Crouhy, M., Galai, D., & Mark, R. (2010). Risk management. New York: McGraw Hill.

Hopkin, P. (2013). Risk Management. London: Kogan Page.

Who's who in insurance and risk management. (2003). Dr. Kallman, J: Underwriter Print. & Pub. Co.

Koester, Frank (April 1912). "Our Stupendous Yearly Waste: The Death Toll of Industry". The World's Work: A History of Our Time. XXIII: 713–715.

Ladou, Joseph (2006). Current Occupational & Environmental Medicine (4th ed.). McGraw-Hill Professional. 

Lebergott, Stanley (2002). "Wages and Working Conditions". In David R. Henderson (ed.). Concise Encyclopedia of Economics (1st ed.). Library of Economics and Liberty.

Roughton, James (2002). Developing an Effective Safety Culture: A Leadership Approach (1st ed.). Butterworth-Heinemann. 

Viscusi, W. Kip (2008). "Job Safety". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty.