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CORPORATE RISK MANAGEMENT
SEMESTER ONE
MODULE DESCRIPTION
This module examines identification, measurement, control and financing of pure risks in business organisations.
MODULE / LEARNING OBJECTIVES
An understanding of how to deal with pure risk effectively. To integrate knowledge across the curriculum http://www.ukassignment.org/dxygessay/ including finance, accounting, marketing and management.
MAIN READING (one of the following)
S.E. Harrington and G. R. Niehaus, Risk Management and Insurance, 2nd edition, McGraw Hill International, 2004 [HN]
C A Williams, M L Smith, P C Young, Risk Management and Insurance, 7th edition, McGraw Hill, 1995 [WSY7]
C A Williams, M L Smith, P C Young, Risk Management and Insurance, 8th edition, McGraw Hill, 1998, [WSY8]
SUPPLEMENTARY READING
N Crockford, Risk Management, Witherby, 1991 [C]
D Cutter, Theft, all risks and money policies, Cromer Publications Ltd, 1990
G C A Dickson, Risk Analysis, 2nd edition, Witherby, 1992
G C A Dickson, Corporate Risk Management, Witherby, 1989
M S Dorfman, Introduction to Risk Management and Insurance, 6th edition, Prentice Hall, 1998
M R Greene & O N Serbein, Risk Management Text and Cases, 2nd edition, Reston Publishing Co, 1983
N Lawrence, The Business guide to Insurance, Cromer Publications Ltd, 1989
R I Mehr & B A Hedges, Risk Management in Business Enterprise, Irwin 1963
R I Mehr & B A Hedges, Risk Management in Management Concepts and Applications, Irwin 1974
J Woodhouse, Managing Industrial Risk, Chapman & Hall, 1993
S Wilkinson, Physical Control of Risk, Witherby 1992
There is also much information on the subject of risk management to be found on the internet.
TEACHING METHODS
Lectures followed by interactive tutorials..
Additional classwork (e.g. case studies, numerical examples) may also be included on an 'ad hoc' basis if the need arises.
MODULE ASSIGNMENTS
One (essay) to be submitted by the 10th week
METHOD OF ASSESSMENT
Course work 25% (one essay) Examination 75% (Two hours)
LECTURES/TUTORIALS
2 hours per week
Lecture topics
The nature of risk management
Risk identification
The firm's loss exposures I
The firm's loss exposure II
Risk measurement and probability distributions
Risk control tools
Risk financing
Insurance vs alternatives
Legal aspects of insurance and insurance contracts
Dealing with insurers
LECTURE 1 The nature of risk management
Reading
HN, chs 1 and 2
WH, chs 1, 2, 14
WSY7, chs 1, 2, 11, 20
WSY8, chs 1, 2, 3, 15
Greene & Serbein, Chs 1, 2, 4, 5
Mehr & Hedges (1974), Chs 1, 2
Mehr & Hedges (1963), Chs 1, 10
C, Chs 1, 2, 10
Dorfman (1998) chs 3 and 4
Topics
Risk management principles and processes.
Risk management in organisations
Role of risk managers
Introducing, monitoring and updating risk management programmes
Discussion/Self test questions
1. Distinguish the realm of risk management from other aspects of management.
2. Provide an overview of the risk management cycle.
3. What are the objectives or risk management?
4. Provide examples of how risk management objectives might conflict with other organisational objectives.
5. Explain the direct and indirect influences of risk management procedures on corporate profitability.
LECTURE 2 Risk Identification
Reading
HN Ch,. 3
WH Chs 3,4
WSY7, Chs 3, 20
WSY8, chs 4, 15
Greene & Serbein, Ch 3
Mehr & Hedges (1974), Chs 7, 8, 14
Mehr & Hedges (1963), Ch 6
Dickinson (1991), whole book
Wilkinson, Chs 1, 3
C, Ch 3
Dorfman (1998) ch3
Topics
Nature of risk identification
Appropriate methods and techniques
Sources of information
Communication channels
Discussion/Self-test questions
1. Provide an overview of the main pure risks faced by a business enterprise.
2. Under ideal circumstances, how should a risk management department and other departments in organisations interact to maintain a continuous awareness of corporate pure risks.
3. What recorded information (written and on computer) do organisations generally have available which is useful for pure risk identification?
4. Explain why "bottom up" risk identification is better than "top down" risk identification.
5. How are HAZOP studies performed? What are their advantages and limitations?
LECTURE 3 The firms loss exposures I
Reading
a) For property loss exposures
HN Ch.3
WH, chs 5, 6, 18
WSY7, ch 5
WSY8, ch5
Greene and Serbein, Chs 8, 9
Mehr & Hedges (1963), Chs 8, 9
Wilkinson, chs 3 to 12
Cutter, whole book
b) For personnel loss exposures
HN Chs. 16, 17, 18
WH, Chs 9, 21 to 25
WSY7, ch 7
WSY8, ch7
Greene and Serbein, chs 10 to 12
Mehr and Hedges (1974) chs 11, 12
Topics
Property loss exposures
Consequential loss exposures
Personal exposures
Discussion/self test questions
1. What is "property"?
2. Distinguish between a) a peril, b) a hazard, c) a loss
3. Provide a detailed overview of what a firm's property loss exposure comprises
4. Provide a detailed overview of what a firm's personnel loss exposure comprises.
5. What key information is required for estimating a firm's consequential loss exposure?
LECTURE 4 The firms loss exposures II
Reading
HN chs. 12, 28, 29
WH, chs 7, 8, 19
WSY7, ch 6
WSY8, ch8
Greene and Serbein, chs 8, 9
Mehr and Hedges (1974), chs 9, 10
Mehr and Hedges (1963), ch 7
Topics
Liability exposures
Legal bases for liability actions
Discussion/self test questions
1. Provide a detailed overview of a firm's liability loss exposure
2. To what extent is a firm's liability exposure determined by a) internal factors, b) external factors?
3. What records (internal and external) can be useful in determining a firm's liability exposure?
4. Describe the legal bases for liability actions.
5. What problems can arise in estimating the value of a liability loss?
LECTURE 5 Risk measurement and probability distributions
Reading
HN chs 3, 26
WH, ch 4, Appendices B, C, D
WSY7, ch 4
WSY8, ch10
Greene and Serbein, ch 3
C, ch 4
Topics
Use of probabilities and statistics for risk measurement
Probability distributions
Discussion/self test question
1. What are the main types of probabilities and where do they come from?
2. What are the (i) advantages and (ii) limitations of probability distributions in risk management.
3. Explain the procedure for estimating a firm's total loss exposure from details of past losses.
4. Suggest situations and provide numerical examples for using the following probability distributions as an aid to risk management
i) Binomial
ii) Poisson
iii) Pareto
iv) Normal
v) Lognormal
vi) "other"
LECTURE 6 Risk Control tools
Reading
HN ch 11
WH, ch 10
WSY7, ch 8
WSY8, ch11
Greene and Serbein, ch 5
Mehr & Hedges (1974), chs 3, 4, 5, 22
Mehr & Hedges (1963), chs 2, 3, 4
Wilkinson, ch 2
C, chs 5, 6
Dorfman (1998) ch3
Topics
Risk avoidance
Loss control
Separation of risks
Risk combination
Risk transfer
Justifying expenditure on risk control
Discussion/self test questions
1. Explain the main techniques for handling pure risks.
2. Distinguish between risk control and risk financing tools
3. Distinguish between insurance and non insurance forms of risk transfer.
4. What factors influence the decision on which technique for handling pure risk should be chosen?
5. What information and what criteria can be useful for justifying expenditure on risk control?
LECTURE 7 Risk financing#p#分页标题#e#
Reading
HN chs 4, 22, 25
WH, chs 11, 12
WSY7, chs 9, 10
WSY8, chs 12, 13
Mehr & Hedges (1974), ch 19
Gordon, 1992, whole book
C, chs 7, 8, 9
Dorman (1998) ch3
Topics
Risk financing (non insurance)
Risk financing (insurance)
Optimum risk retention
Captive insurance operations
Discussion/self test questions
1. What are the advantages of insurance over other forms of risk financing?
2. For non insured risk, what are the various forms of risk financing?
3. What criteria are available for deciding how much risk should be transferred?
4. What is a captive insurer and what are its advantages and limitations as a method for financing pure risk.
LECTURE 8 Insurance vs alternatives
Reading
HN chs 4, 8, 9, 23, 25
WH, chs 12, 13, 14
WSY,7 chs 9, 10, 13
WSY8, chs 12,1 3, 16
Greene and Serbein, chs 6, 7
Mehr and Hedges (1974), ch 6
Mehr and Hedges (1963), ch 5, 14
Gordon, 1992, ch 6
C, ch 8
Topics
Techniques of loss control (passive, active, and post loss)
Cost benefit analysis of risk management decisions
Principles and treatment of losses and recoveries for accounting and tax purposes.
Discussion/self test questions
1. Insurers charge a mark up on top of the level of expected losses so how can the purchase of insurance be justified?
2. What services can an insurer offer which an organisation cannot provide for itself.
3. What are the firm's alternatives to insurance for dealing with pure risk?
4. Explain the procedure for justifying the purchasing of insurance on an after tax basis.
LECTURE 9 Legal aspects of insurance and insurance contracts
Reading
HN chs 6, 10, 21
WH, chs 15, 16, 17, 29
WSY7, chs 16, 17, 18, 19
WSY8, chs 19, 20, 21, 22
Mehr and Hedges (1974), chs 15, 16
Mehr and Hedges (1963), chs 13
Cutter, chs 1 and 2
Dorfman (2998) ch9
Lawrence, whole book
Topics
Nature of insurance contracts
Key legal concepts
Structure of insurance contracts
Insurer's and insured's obligations
Discussion/self test questions
1. Distinguish between insurance contracts and other contracts.
2. What key legal concepts should be understood by risk managers when dealing with insurance companies?
3. Explain the general structure of an insurance contract.
4. What are the insured's and insurer's obligations a) prior to a loss, and b) post loss
5. Can I purchase an insurance under which I can claim if you die? Why?
LECTURE 10 Dealing with insurers
Readings
HN chs 5, 8
WH, chs 26, 27, 28
WSY7, chs 14, 15, 20
WSY8, chs 15, 17, 18
Greene and Serbein, chs 14, 15, 16
Mehr and Hedges (1974), chs 17, 18
Mehr and Hedges (1963), chs 12, 16, 17
Dorfman (1998) ch 5
Topics
Structuring an insurance programme
Structure of insurance markets
Nature and types of reinsurance
Criteria for selecting an insurer
Insurance and risk management manuals
Discussion/Self test questions
1. Provide a checklist of things that a risk manager should do to maintain satisfactory relations with insurers (from both parties) points of view.
2. Why do risk managers need to know about the structure of insurance markets?
3. What are a risk manager's main criteria for selecting an insurer?
4. What information could an "insurance and risk management manual" usefully contain?
5. Briefly explain the main types of reinsurance.
6. What kinds of intermediaries can go between risk managers and insurers and what are the advantages and disadvantages of each?
ESSAYS
1. How can the costs and benefits of risk management procedures be measured a) in the short run and b) in the long run?
2. "Risk identification is an underdeveloped art" Discuss and include an overview of risk identification aids and techniques in your answer.
3. To what extent should a firm's exposure to physical risk be taken into account in capital budgeting decisions? How can this be achieved?
4. Provide an overview of the techniques available for risk managing a firm’s liability exposure.
5. To what extent can the use of probability distributions in risk management be used to remove the need for a genuine understanding of the perils and hazards faced by the firm?
6. You are the risk manager for a fleet of motor vehicles. Your usual insurer has just sent you a quote for next year's insurance premium and you consider it to be too high.
(i) Explain the alternative risk management courses of action available to you, and
(ii) Explain the thought processes and analysis that should be undertaken in order to choose between the alternative courses of action.
(Note you are not required to be an expert in motor risks and insurance. Answer the question with reference to the general principles of risk management and common sense.)
7. How should a firm decide between risk retention and risk transfer (including partial risk transfer)
(i) if a captive insurer is not to be employed.
(ii) using a captive insurer.
8. Explain in detail how a risk manager can make optimal use of insurance as part of an overall risk management strategy.
9. (a) Explain the main sections of a firm's "All risks" insurance policy, and
(b) Insurance contracts tend to be in "standardised" form. What http://www.ukassignment.org/dxygessay/ factors could lead to them becoming more "tailor made".
10. Explain how the decision to purchase insurance should be influenced by
(a) the structure of insurance markets
(b) the price of cover
(c) availability of intermediaries
(d) insurers’ underwriting policies
(e) insurers’ security and solvency.
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