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RISK MANAGEMENT &

INSURANCE
RISK MANAGEMENT &
INSURANCE
RISK- DEFINITION
Risk is defined as the chance of having
a loss due to occurrence of an event
The risk is always associated with the
loss aspects since the word itself has
the association of DANGER OF LOSS
The definition can be PROBABAILITY OF
THE OCCURRENCE OF AN EVENT RESULTING
IN LOSS/ GAIN

RISK AND MANAGEMENT
RISK- CHANCE OF AN EVENT HAPPENING
RESULTING IN LOSS/ GAIN
TO APPRECIATE THE NEED FOR LOSS
PREVENTION AND IMPLEMENT MEASURES
TO ACHIEVE THE SAME
THE EFFORTS ARE AIMED TO PREVENT A
LOSS HAPPENING BUT ALSO TO MAKE IT
MANAGEABLE IF IT HAPPENS
THIS ASPECT IS TO BE ACHIEVED IN ALL
ACTIVITES OF THE ORGANISATION BE IN
PRODUCTION, STORAGE, HANDLING,
TRANSPORTATION AND DISTRIBUTION
EFFECTS OF RISK
Risky situations are to be faced by those who are
deploying their Capital & RESOURCES in any VENTURE
( is it an ADENTURE?)
Adventure means venturing into some area which may
have serious effects on the well being of the resources
All Industries / Business do face such situations every
day in their activities
Hence risk may bring in loss in case of an accident /
untoward happening but can bring in profits in things
go in the way these are expected to happen

Risk Management- Macro
Provision of adequate infrastructure,
trained personnel and capability to
mitigate huge losses due to disasters
natural & man made will be the main area
for macro analysis by the Government
Natural disasters result in huge
devastation and loss of human lives
Bhopal tragedy had put India in Guinness
book of world records as one of the big
tragedies of the world
Risk Management-Macro
Pollution is now causing the maximum concern & affects
the health of citizens and young population- Solid, water,
air
We need to improve the public hygiene awareness and
the way in which we are soft targets for epidemics due
to pollution
Past earthquakes in Maharastra & Gujarat had shown
how ill prepared we are
Every year the country is ravaged by floods in many
parts and drought in some parts- interconnection of
rivers remains a distant dream- water may become one
of the major sources of trouble in this country
Infrastructure is looked into only after development and
government is then unable to acquire the land required
Risk Management-Macro
Allowing too many Airlines without
runways has only resulted in air
congestion and pollution of air at higher
level
We are contributing to global warming,
unpredictable weather conditions, hole in
the ozone layer which nature has provided
to shield us from ultra-violet radiation
Unscrupulous destruction of forests and
creation of concrete jungles has resulted
in ecological imbalance
RISKS A BUSINESS FACES
ENVIRONMENTAL RISKS-LEGAL,
SOCIAL, ECONOMIC, FINANCIAL RISKS
CHANGES IN BUSINESS, SPECULATIVE
RISKS,TECHNOLOGICAL CHANGES
PURE RISKS
FUNDAMENTAL RISKS
STEPS IN MANAGEMENT
PLAN
ORGANISE
DELEGATE
MOTIVATE
TRAINING
CONTROL
COURSE CORRECTIONS
ACHIEVE THE GOALS
EFFECTS OF PURE RISKS
ORGANISATION FACES

LOSS
EVENT
A.LOSS OR
DAMAGE TO
PROPERTY
B.PECUNIARY LOSSES
(FINANCIAL)
C.LIABILITY LOSSES
D.LOSS OF KEY
EMPLOYEES
BODILY FATAL/NON-FATAL
TO EMPLOYEES
Details A.Loss /dge to property
Fire & explosion
Storm, cyclone, hurricane,
flood/inundation
SRCC
Accidental damages
Breakdown losses
Financial losses
Business Interruption
Loss of profit
Continuing fixed costs
Cost of alternate accomodation
Increased cost of working
Increase in cost of replacement of assets
following loss/damage/destruction
Under insurance/absence of insurance
Liabilities
to general public
to users due to defective products
to employees as employer
as tenants
other legal liabilities
due to their acts-Directors/ Officers
Human resources
Fatal or non-fatal injuries
Loss of key/ trained employees
Loss of earnings due to disablement
Hospitalization and medical expenses
Travel ( inland and overseas)
EFFECTS OF SPECULATIVE
RISKS ORGANISATION FACES
SPECULATIVE
RISKS
LOSS OF REVENUE
DUE TO LOSS
OF MARKET SHARE
LOSS OF CUSTOMERS
/SUPPLIERS
INCREASED FIXED
CHARGES/ LOSSES
LOSS OF KEY
EXPERIENCED
EMPLOYEES
Risk Management- Definition

Risk Management is defined as the
systematic way of ensuring protection
of business resources and income
against losses so that the aim , goals
and vision of the company can be
reached.
Thus Risk Management creates stability
and contributes to growth and assures
profitability of the Organisation.
AIM OF RISK MANAGEMENT
TO SUCCESSFULLY ACHIEVE THE
OBJECTIVES OF THE ORGANISATION
ACHIEVE THE COMPANYS MISSION
ACHIEVE THE SHORT TERM AND LONG
TERM GOALS OF THE ORGANISATION
SATISFACTION OF CUSTOMERS,
MANAGEMENT, EMPLOYEES AND
SHARE HOLDERS & GOVERNMENT
RISK MANAGEMENT
This is of very recent origin ( less than three
decades old)
This is now being considered as a managerial
topic and as aspect in which the top
management should get involved to reduce
any adverse effects on the balance sheets.
RM can be described as the scientific way of
dealing with or handling the risks.
This is done by Risk Analysis, Risk Control,
Risk Transfer, Risk financing and rolling
review

ICEBERG OF LOSSES

INSURED LOSSES
UNINSURED LOSSES
UNINSURED LOSSES

LOSS OF GOODWILL
LOSS OF MARKET
LOSS OF CUSTOMERS
LOSS OF SHAREHOLDER VALUE
LOSS OF KEY EMPLOYEES
LOSS OF COSTS INCURRED


THE R M IMPERATIVES
RISK NEEDS PERCEPTION
RISK ANALYSIS
RISK ASSESSMENT
RISK MINIMISATION/CONTROL
RISK IMPROVEMENT
SHARE INDUSTRY EXPERIENCE
SHARE INFO ON CHANGES - BOTH
CURRENT & PROSPECTIVE

THE R M BEST PRACTICES ?
INVOLVE ALL PLAYERS
EDUCATE, CONTINUOUSLY
INVOLVE CORE & NON-CORE
INVOLVE FINANCIAL PERSONNEL
INVOLVE SAFETY PERSONNEL
INVOLVE FIRE SERVICE PERSONNEL
INVOLVE BUSINESS PARTNERS
INTERACT, CONSTANTLY -
PROACTIVELY

THE RISK MANAGERS DOS

ALWAYS ADDRESS CHANGE & CONTENT
MANAGEMENT AT ALL TOUCH POINTS
REGULATORY/INSURER/INSURED/
INTERMEDIARY/SURVEYOR
ADDRESS DELAY POST-HASTE
COMMUNICATE CONTINUOUSLY
GET REAL NO
EXAGGERATIONS/BLUFFING
GET YOURSELF PROFESSSIONALLY
RESPECTED CONTINUOUS EDUCTION

THE RISK SPECTRUM
ENIRONMENTAL RISKS
STATUTORY RISKS
LEGAL RISKS
TECHNOLOGICAL RISKS
HUMAN ELEMENT
PRODUCTION/ FINANCIAL/MARKETING
MARKET RISKS
TIME FACTOR

THE RISK SPECTRUM
PROJECT RISKS
STORAGE RISKS
ERECTION & MAINTENANCE RISKS
OPERATIONAL RISKS
STORAGE RISKS
TRANSPORTATION RISKS
OUTSOURCING RISKS

PURPOSE OF RISK MANAGEMENT
RISK MANAGEMENT AIMS TO PROVIDE AN
INCIDENT FREE AND ACCIDENT FREE
ENVIRONMENT FOR ACHIEVEING THE
OBJECTIVES OF THE ORGANISATION
RISK MEANS UNCERTAININTY OF THE
OCCURRENECE OF AN EVENT WHICH MAY
RESULT IN LOSS/GAIN
IMPORTANT CHARACTERISTICS ARE THE
UNCERTAINITY/ SEVERITY OF SUCH LOSSES
ADVANTAGES OF RM
To achieve the objectives of the Organisation
To ensure that the goals short term and long term
are achieved without any disruption or delay
To optimise the utilisation of the resources
To have knowledgeable insurance arrangements
and have considered decisions on insurances not
to be availed
ENVIRONMENTAL RISKS
Risks which are to be faced which are
external but influence the working and health
of the Organisation
These are called Environmental Risks
Legal
Social- Riots/Strikes/Bandh
Political-Change in the political systems of
Governance and Management-tensions with
neighbours
Economical- Soaring Oil prices
MANAGEMENT
ALL ABOUT ASPECTS OF SUCCESSFUL
MANAGEMENT OF RISKS BOTH PURE AND
SPECULATIVE RISKS
PROPER PLANNING
ORGANISE THE AVAILABLE RESOURCES
COORDINATION
DELEGATION
MOTIVATION
DECISION MAKING
ROLLING REVIEW
CLASSIFICATION OF RISKS

SPECULATIVE RISKS & PURE RISKS

DYNAMIC RISKS & STATIC RISKS

FUNDAMENTAL RISKS

PARTICULAR RISKS
CLASSIFICATION OF
RISKS
SPECULATIVE
RISKS
Operation of this
leads to profit /loss
Leads to speculation
like investment of
capital in a new
venture
Operation is desired
PURE RISKS

These do not change
with the risk
The operation of these
perils does bring in
loss/damage to
property/assets/ liability
Not desired
Classification of Risks
Dynamic risks
Changes with the
change in fashion,
buying behaviour,
trends, technology etc
It denotes dynamic
nature of the customer
behaviour and the
products they like to
own or use
If an organization is not
prepared then it may go
out of existence
Static risks
Like pure risks these
risks remain static and
do not change due to
other reasons like that of
dynamic risks
The operation of these
risks always bring about
losses
Operation is not desired
May result in partial or
total cessation of
activities



CLASSIFICATION OF RISKS
PARTICULAR RISKS
Risks which relate to
one or few firms,
factories or
organisations only
Losses are suffered
by one or few more
members of the
society
FUNDAMENTAL
RISKS
Relates to the society at
large
Losses are suffered by
large section of the
society/nation(s)
Losses may be due to
natural catastrophes,
riots, epidemics etc
Development of Risk
Management
The Industries / Business houses want to have
incident free/ accident free working to achieve
their objectives
For this purpose it is necessary to understand the
loss producing events , the nature of losses/
extent of losses to come up with the loss control
measures.EXPOSURE ANALYSIS
Risk Management aims to help the owners to have
control on loss incidents and to reduce the extent
of losses by proper study of the exposures and
actions to be taken to control the same
This as a science had developed in about thirty
years period
Risk Management process
The steps in Risk Management process are:
1. Risk analysis- Risk identification &
Risk evaluation
(Risk measurement)
(Risk quantification)
2. Risk control - Risk avoidance
(Risk minimization)
3. Risk transfer- Insurance with
Professional
Insurance companies
4.Risk financing- Risk retention
5. Rolling review

How the loss is caused?
Loss is caused by the operation of perils
which refers to the causes for the losses
Loss or damage is caused by the operation of
perils such as fire, explosion, flood, storm etc
The loss potential ( extent of loss) depends
on conditions which are favourable for the
incident to assume large proportions. This is
known as hazard or potential of the loss.
More the potential severe will be the extent
of loss
PERIL ( CAUSE)----------------LOSS(EFFECT)
HAZARD
Causes of losses
Perils- such as fire, explosion etc
Human factors- such as negligence, carelessness,
inadequate training, inadequate supervision, lack
of proper systems and controls
Inadequate maintenance ( predictive/ routine/
annual maintenance)
Failure of Plant/ machinery due to breakdowns
(failure of safety devices)
Natural perils such as flood, cyclone, earthquake,
landslide, rockslide & subsidence
Extraneous: Accidents involving Gas or chemical
in nearby units
HAZARD
Hazard is defined as conditions existing which
are favourable for the loss becoming severe
CLASSIFICATIONS OF HAZARD
Physical hazard-Originating hazards
Contributory hazards
Tertiary hazards
Moral hazards -relating to the moral behavoiur
of the clients
Morale hazard -Relating to the morale & working
conditions of the employees & employer-
employee relationships

RISK ANALYSIS
Needs to be done by a person who is
conversant in the identification and
measurement
The severity of the risk depends on two
factors extent and frequency ( probability)-
ranges from 0-1
There are various methods to analyze the
extent of loss
The frequency is to be analyzed based on the
analysis of data ( loss events and the
frequency ) using statistical methods
RISK ANALYSIS- METHOD
LIST ALL POSSIBLE RISKS
INVESTIGATE BY
STUDY
INQUIRY
DOCUMENT REVIEW
PHYSICAL INSPECTION
ANALYSE EACH RISK
RISK CONTROL
PRESERVE CONTINUITY OF OPERATION
UNDER SAFE OPERATING CONDITIONS
PROPER PLANNING LAYOUT OF
BUILDINGS/PLANT/MACHINERY
BUILD IN SAFETY TO AVOID LOSSES TO
PERILS SUCH AS FIRE, EXPLOSION NATURAL
OR HUMAN NEGLIGENCE CAUSING SERIOUS
LOSSES
RISK ANALYSIS
Property losses- losses which can happen to the
Assets
Pecuniary losses- Financial Loss which can be
caused by business interruption due to the loss to
the assets, financial loss due to infidel acts of
employees, storekeepers and other employees
Liability losses- Loss to the Third Party property or
third party personnel ( also known as TPPD and
TPBI) due to activities of the Organisation
Personal injuries- accidents resulting in fatal or
non-fatal injuries to the employees
RISK EVALUATION
Methods available are
Study of Organisational charts/ balance
sheets, accounting records
Process flow diagrams, P & I diagrams
Input- output analysis- contribution from
various sections, inter-dependencies
Study of completed checklists
Threat analysis- Denial of access, Loss of
services


EVALUATION METHODS
INPUT OUTPUT ANALYSIS TO TRACE
THE FLOW OF GOODS AND SERVICES
TO IDENTIFY THE CONTRIBUTION OF
PARTS OF ORGANISATION TO THE
TOTAL EARNINGS AND TO ANALYSE
EXPOSURES
FAULT TREE ANALYSIS
EXAMINE RELATIONSHIP OF VARIOUS
TYPES OF FAILURES
THE TREE IS CONSTRUCTED BY ASKING
WHAT MUST OCCUR BEFORE A LOSS
PRODUCING EVENT HAPPENS
EXPLOSION REQUIRES- FORMATION OF
EXPLSOIVE MIXTURE- CLOUD
FORMATION- SOURCE OF IGNITION
PROBABILITY ANALYSIS WILL HELP IN
APPRECIATON OF THE RISK INVOLVED
SAFETY AUDITS
THOROUGH KNOWLEDGE
TEAM OF EXPERIENCED OFFICIALS
WALK IN AUDIT
EXAMINATION OF THE STANDARDS
HOUSEKEEPING SECURITY, TRAINING
AND PREPAREDNESS OF
EMPLOYEES,MEANS OF ESCAPE
RISK EVALUATION-CONTD.
Event analysis- Effects of a loss
producing event
Hazard Logic Tree- Risk and effects
Hazard Operability studies- more of ,
less of, none of, part of,
Fault tree analysis- Explosion,
Safety audits- Physical inspection

RISK HANDLING METHODS
ADOPTION OF LOSS CONTROL MEASURES
Loss control measures involve the nature of
the devices utilized and the human factor
For any system to be effective the employees
concerned need to be properly trained and
knowledgeable.
The Management need to ensure that the
systems employed are in good working order
the employees are regularly trained.
RISK AVOIDANCE
This is also known as Risk Elimination
Identify the risk and if possible avoid the
risk by eliminating the source
It is like avoiding a location due to seismic
activity in the area
Avoiding a low lying location which is
susceptible for flooding
RISK MINIMIZATION-RISK CONTROL
If risk can not be eliminated then it is necessary to
minimize the extent of loss/damage/liability by
employing loss control measures
Utilizing fire fighting measures like detectors/
hydrants/sprinklers
Using CCTVs/ watch & ward to ensure adequate
security
Employees need to be well trained for fire fighting
operations
Employing proper checking /screening systems/
regular and its inventory controls
Checking the antecedents of persons employed

RISK RETENTION
To keep the costs under control, after
analyzing the risks the Management, may
decide to retain some of such losses to its
account.
Once a decision is taken , then necessary
provision needs to be made to avoid such a
loss ,if happens, eating into the operating
budget
Special contingency funds are therefore to be
created for this purpose
EFFECT OF LOSSES
Huge losses will upset the functioning of the
Power Station
Besides the interruption losses, the loss of
goodwill, investigation by Government and
other agencies will be tedious
The direct impact of any incident is in the
monetary loss and in restarting of the
affected unit.
Employees morale gets affected
RISK MANAGEMENT POLICY
The RMP is to be adopted by the
Management
The Policy details should be communicated to
the employees
The need to have the RMPolicy should be felt
by the employees
The Corporate Risk manager is responsible
for the implementation of the RM Plan
The RM Dept will produce its own report and
follow it up with an annual report on its
performance
CORPORATE RISK MANAGER
The Corporate risk manager is essentially the
coordinator . He has to analyze the various activities
and find out the risks involved and analyze which are
to be controlled, avoided and which are to be insured.
Once the plans are finalized and adopted by the
Management , the Insurance dept ensures that the
insurance policies are obtained and maintained during
the annual period
Periodical reviews need to be done to ensure that the
risks are analyzed and necessary modifications are
done to suit the organization's policies.
CONTINEGENCY PLANNING
IDENTIFICATION OF ALTERNATE SOURCES
IDENTIFICATION OF KEY AREAS
PLANNING FOR COMEBACK IN SHORTEST
POSSIBLE TIME
BACKUPS OR DUPLICATE RECORDS OF VITAL
INFORMATION TO BE MAINTAINED IN
ALTERNATE SAFE LOCATIONS
INCIDENT /ACCIDENT
INVESTIGATION
ALL INCIDENTS WHETHER THESE RESULT IN
AN ACCIDENT OR NOT NEED TO BE
REPORTED AND ANALYSED TO AVOID A
FURUTE LOSS OR RECURRENCE.
ALL LOSSES NEED TO BE STUDIED
WHETHER SMALL OR MEDIUM OR BIG WITH
A VIEW TO LEARN THE CAUSES AND TO
ENSURE THAT PREVE
CONTRIBUTIONS OF RM TO
THE BUSINESS
Achievement of objectives/ goals
Reduced anxiety due to losses are of reasonable
magnitude and does not cause serious loss situations
Goodwill is maintained by meeting the obligations
The business is able to survive competition
Successful and continued operations
Resultant growth and sustained earnings
Better care for employees and society at large
Reduction of expenses
Better relationships between customers, suppliers,
employees


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