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CHAPTER 9

CORPORATE RISK CONTROL

ANIS SYAFIQAH BT MOHAMMAD AZMI


NOR ADILAH BINTI MOHD RASHID

RISK
MANAGEME
NT
TECHNIQUE
S

RISK CONTROL
Objective of risk control
1)To minimize the total cost of risk of an

organization
2)To ensure long-term economic survival or
organization after the occurrence of major loss
event.
Includes
1) Risk avoidance
2) Risk reduction
3) Segregation of exposure units
4) Contractual transfer for risk control

Risk avoidance

Risk Reduction
Includes two approaches
Loss prevention

Preventing the loss from occurring by


reducing the probability off loss
Loss control

Minimize the size of losses that do accur.

Loss prevention

Loss control

Specialized loss control


measures
Measures
taken to reduce the losses arising from

different risk exposures are very specialized and


complex
Depending on the exposure units and perils.
Few general loss control measures that are adopted
to reduce losses caused by most perils that
organization is exposed to a generic in nature.
There are segregation of exposure units and salvage.
Salvage refer to immediate action taken by
organization to preserve the value of the asset that
has been damaged in an accident.
Eg: stock may be damaged by water or smoking
during fire. Action taken to prevent the good form
suffering further damage and to preserve their value
called salvage.

Segregation of exposure
units

Contingency planning
There is three components of contingency

planning.
1.Pre-loss phase- preparation and
implementation of contingency plan
2.Loss phase- crisis management plan to
save lives and limit damage.
3.Post-loss phase- business recover plan to
initiate speedy and effective business
recovery.

Crisis management
planning

Defined as planning, organizing and controlling of

the companys asset and activities in the critical


period immediately before, during and after an
actual loss event.
This is to reduce the loss of resources essential to
companys eventual full recovery.
To ensure the corporation will survive any
foreseeable major accidental losses.
Reasons for developing a crisis management plan
1) Mitigate the impact of loss
2) Contain the loss
3) Response to control and situation effectively
4) Resolve or recover from crisis situation
Business recovery planning need to be continuously
updated and reviewed regularly to take into account
changes in operation and market conditions.

Key element of good crisis


management plan.
Organizational structure of crisis management

team- chain of command and responsibilities of


team members should clearly establish in the plan.
Protection and evacuation of personnel-should
contain measures to protect all employees from any
foreseeable danger that might arise during a crisis.
Safeguarding of production facilities-enable the
organization to continue operation after the crisis
event, procedures should be developed.
Communication during and after the
crisis( media management)-organization must
effectively communicate with customers, suppliers,
regulators, employees and media during a crisis
event. Should specify the procedure for supplying
information during and after crisis.

Contractual transfer for risk


control (non-insurance

To shift legal responsibility for a loss or


transfer)

responsibility for financial consequences off


loss to another organization
Can be divided into two categories.
1.Risk control transfer- transferor transfer legal
responsibility of loss to transferee through
the use of contract or agreements.
2.Risk financing transfer- one organization
make promise to pay for the loss incurred by
another organization even it is not legally
responsible for the loss.

Importance of Risk Control


Prevent losses,reduce the severity and
frequency of losses and allow business
operation to recover speedily through
effective contigency plans.
Eg :- installation of automatic fire sprinkler
system is one of the best fire safety measures to
extinguishes fire effectively .

Risk control measure should be used only when

the marginal benefits equal that of marginal cost


inccured. However,application of this marginal
cost marginal analysis to risk control is
complicated by the following factors :1) The benefit generated from risk control are
difficult to
measure as it involves measuring
something that does not happen in the future.
2)Time difference between benefit generated and
the cost
inccured to implement risk control
measures.

Role of Government in Risk Control


Introduce a number of safety legislation or
regulations which impose mandatory duty on
companies to implement risk control measure
in connection with industrial safety and fire
safety of buildings.
For example,the Fire Safety Act 1988 imposes
a set of fire safety rules on the buildings and
the Occupational Safety and Health Act 1994
sets out the laws about health and safety
requirements at workplace.

Theories of Accidental Causation and


Control

1)
Domino Theory
Developed mainly from the study of
industrial accidents and worker
injuries.
2) Energy Theory
considers accident as a result of
uncontrolled
release of energy

Loss Prevention and Control for Product


Liability

Loss Prevention and Control against


Theft Risk

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