Risk Management Analysis Project Spring 2016

This assignment consists of an analysis of a company that you select and a written report of your findings and recommendation. The objective of this project is to identify and analyze a buisness' risk exposures and help assess how the firm should handle those exposures.

This analysis should help students

a) understand the steps in the risk management process
b) identify risks that are inherent to many small businesses
c) explain the possible tools that may be used in risk management
d) identify various classifications of risk
e) examine how risk imposes significant economic losses upon the business or individuals affected by the business
f) learn how to construct a professional report that could be presented in a business setting.

To complete this project, students will select a small business, interview the owner or a representative of the business, conduct an on-site analysis of the business, present findings to class, and complete an executive report containing the information below. The project should be completed and presented as if you are the risk manager presenting your report to the board of directors or to the owner of the company.

Steps to complete this project:

1. Select a local small business and ask the owner or manager if you may perform a risk management analysis on its exposures. Please let them know that you will not ask for confidential information and that this project will be used only for a course project. You may offer to change the name of the company if that makes the owner more comfortable. Be sure it is a company to which you have access. Often students select a company for which they work or one for which they know the owner or manager personally. You will need to confirm the name of the company that you have selected on the date noted on the syllabus.

2. Follow the steps of the risk management process (these start on Page 1.33 of your text, with a list on page 1.35.), including:

a. Make a list of the risk management identification tools you can use to identify the exposures that the firm faces. You will need to use at least four of these identification tools in your analysis. These tools are discussed in Chapter 2 of your text.

b. Make a list of all of the information that you would like to get from the company owner or manager when you go for your interview and physical inspection. This step is your roadmap for completing the analysis.

c. List everything that you will need to complete your report, such as pictures, surrounding businesses, ownership structure, key customers or suppliers, etc.

d. You will want to write a brief questionnaire. The questionnaire as well as the answers you will get from your contact person will be included in your final report.

3. Describe the four key loss exposures from each of the four Risk Management areas (discussed in Chapter 1 of your text). You will have a total of 16 loss exposures.

a. Property Loss Exposures
b. Liability Loss Exposures
c. Net Income Loss Exposures
d. Personnel Loss Exposures

4. Make an appointment to visit your company and interview the owner or manager/contact person. Complete the questionnaire and get any pictures and supporting documents that are relevant and available. Look for each type of loss exposure during your personal inspection and document any facts that may be relevant to your report.

5. Assess the frequency and severity of at least ONE of the loss exposures you identified in Step 4. You may use hypothetical data to analyze those two exposures. Use at least one of the following assessment techniques (discussed in Chapter 2). Explain your process for obtaining your data or information (and whether you use hypothetical information), and the implications of your results. Suggestions on assessing the frequency and severity are:

a. Complete a Prouty approach diagram with the exposures of your company
b. Complete a claims distribution table (see page 2.43 of your text)
c. Calculate the standard deviation of your data and show your results on a normal curve. Your diagram does not have to be to scale. You will only need to plot your mean, and your expected values that are within 1, 2, and 3 standard deviations away from your mean. (See example on page 2.36 of your text).

6. Carefully consider each of the six Risk Control techniques and the two Risk Financing Techniques (see summary diagram on page 1.36; more details are discussed in Chapters 3 and 4 of your text). Select a risk management technique for two exposures identified in each of the four RM areas (Step 4). In total, eight techniques should be recommended. Use each technique at least once and do not use any technique on more than two exposures. For example, one of the risk control techniques is Avoidance. Do not recommend Avoidance as a means for managing more than two loss exposures.

7. Summarize your analysis by highlighting the most important exposure overall for the firm and your recommendation on how to manage that exposure. You may use more than one technique for the exposure, such as suggesting the company finance an exposure via risk retention through self-funding the employee's health insurance while also initiating a risk control initiative such as starting a fitness program.

8. Write your analysis in a report to turn in and present your findings to class on your assigned date. Please remember your presentation and your report should be completed as though you are presenting and submitting a professional report (Word File with supporting documents) to the board of directors of a company.

Project Guidelines

• Use professional tone in writing the report and in the presentation. Do not use "we" or "our," my dad, etc. Speak as though the presentation is being given to the board of directors.
• Include information in your report in the order it is listed in the rubric.
• Information in the Rubric is needed in the report as well as the presentation.
• When printing slides, print six per page, and use front and back of the page.
• Do not include any documents or any information in your project that are not relevant to a risk management analysis.
• Be specific in your questionnaire. Do not state "Have you ever had an issue with a client," etc. Make sure questions are helpful in the analysis.
• Attendance is required on the dates on which the projects will be presented. No participation points will be allocated to a student who arrives late on either day or who is absent on either day.
• Do not use plastic sheet protectors in the report.
• Spell out numbers that are less than 10.
• Proofread the project and overheads before submitting and presenting. Points will be deducted for typos and grammatical errors.

Risk Management Techniques

1. Risk Control techniques

A. Avoidance
B. Loss prevention
C. Loss reduction
D. Separation
E. Duplication
F. Diversification

2. Risk Financing Techniques

A. Transfer: Insurance and non-Insurance risk transfer (Hold-harmless agreements and hedging)
B. Retention

Information that should be included in your Final Report

Include all of the information gleaned during your analysis as well as your recommendations on how to address each exposure. At a minimum, the following items should be included in this assignment:

1. The name, addresses, description of the company, and the owner or contact person that you have contacted. A brief overview of the company should be provided, including information on any adjacent business or personal exposures that may be impacted by your company. For example, if your company had been Walt Wheeler Tire Store, you would have needed to discuss the location, other businesses in close proximity to the Tire Store, EPA or relevant local regulatory agencies if any, customer or suppliers on whom the company may be dependent, and any potential contingent liability exposure. Included should be a discussion of how any negligent acts of others may be of concern to the RM of this business. Be sure to include the corporate structure and explain how that is important for RM purposes.

2. Provide an example of at least two losses that have occurred to a business comparable to the one you selected. For example, if you select a small restaurant, you may research prior losses for liability claims in the restaurant industry. Provide at least two examples and citations. This information may help you identify problematic risk areas in your company's analysis.

3. Financial information, which may be hypothetical if actual data are not given. For example, provide estimations of monthly revenues and costs. When relevant, always note at the top of a page that data or information presented reflect hypothetical information.

4. Pictures and additional information or documents that you obtained while conducting the analysis. For example, this could include an employee safety or training policy, a health or fire codes score (such as with a restaurant), or any insurance information the owner or manager is willing to share with you.

5. A questionnaire of at least five questions for each of the four RM areas.

6. A list of at least four potential loss exposures for each of the four RM areas.

7. An analysis and discussion of how you examined the frequency and severity of at least one loss exposure. For example, you could include a Prouty approach table with selected exposures. You may use your discretion in selecting either property, liability, personnel, or net income exposures for your Prouty analysis. You may also conduct a brief financial feasibility report using projected costs and revenues. You may also use a NPV or IRR calculation with projected costs of a particular project, such as installing a sprinkler or alarm system.

8. Identify the most feasible RM technique for two of the four loss exposures in each of the four areas (those exposures identified in #6). Please be as specific as necessary. You need to use each of the risk management techniques at least once.

9. Of the exposures discussed in #8, summarize the most urgent loss exposure that should be addressed. Explain why you find that exposure to be the most important for your company at this time.

10. A summary of your report and measures the business should be taking in handling their loss exposures.

11. Include a brief discussion on how this project helped you understand the RM process and the practical information that you used in completing this analysis.