learning 15008 unit: credits: nqf level: 4 · pdf filenqf level: 4 module : ... duration &...

LEARNING

UNIT:

15008

Determine risk exposure in order

to manage the risk in a specific

situation

CREDITS:

2

NQF LEVEL: 4

Module : 03- Develop an understanding of the

fundamentals of governance

LEARNER GUIDE

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15008

US: 15008 Determine risk exposure in order to manage the risk in a specific situation

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Learner guide Date of review: June 2015

able of

SECTION A: PROGRAMME/MODULE INFORMATION

1. Introduction

2. Module Introduction

3. Purpose of the Module

4. Duration & Notional Hour Grid

5. Programme delivery structure

SECTION B: LEARNING MAP

1. Purpose

2. Specific Outcomes

3. Learner Support Pack

4. Formative Assessment

5. Summative assessment

6. Module:

SECTION C: SELF-REFLECTION

Addendums: Templates

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Table of Contents

1ST SEMESTER ...................................................................................... 11

NOTES TO THE LEARN ........................................................................... 12

Learner Guide Introduction .............................................................................................................. 12

SECTION B: LEARNING MAP .................................................................. 13

Purpose ............................................................................................................................ 13

Recognition of Prior Learning (RPL) .................................................................................................. 14

Range of Learning ............................................................................................................................. 14

Learner Support Pack ....................................................................................................................... 14

Responsibility ................................................................................................................................... 15

Learner Support ................................................................................................................................ 15

Assessment ....................................................................................................................................... 16

SPECIFIC OUTCOME:1 EXPLAIN THE CONCEPT OF RISK IN THE CONTEXT OF INSURANCE........................................................................................... 22

The concept of risk is explained with reference to subject matter and event in the context of insurance. (SO 1, AC 1) ...................................................................................................................................... 22

The concepts of frequency and severity are explained and an indication is given of the relationship between the two concepts. (SO 1, AC 2) ........................................................................................... 22

Different types of risk are named with examples. (SO 1, AC 3) .......................................................... 22

1.1THE CONCEPT OF RISK IS EXPLAINED WITH REFERENCE TO SUBJECT

MATTER AND EVENT IN THE CONTEXT OF INSURANCE. (SO 1, AC 1) ........ 23

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1.2THE CONCEPTS OF FREQUENCY AND SEVERITY ARE EXPLAINED AND AN INDICATION IS GIVEN OF THE RELATIONSHIP BETWEEN THE TWO CONCEPTS. (SO 1, AC 2) ........................................................................................... 25

1.3DIFFERENT TYPES OF RISK ARE NAMED WITH EXAMPLES. (SO 1, AC 3) ... 27

FORMATIVE ASSESSMENT ...................................................................... 29

Role play ........................................................................................................................................... 29

Activity: 01 ......................................................................................................................................... 29

What is the concept of risk is explained with reference to subject matter and event in the context of insurance? (SO 1, AC 1) ................................................................................................................... 29

Project ............................................................................................................................................... 30

Group Activity: 02............................................................................................................................... 30

Which are the concepts of frequency and severity are explained and an indication is given of the relationship between the two concepts. (SO 1, AC 2) ........................................................................ 30

Research PROJECT ............................................................................................................ 31

Activity: 03 ......................................................................................................................................... 31

Which are different types of risk are named with examples? (SO 1, AC 3) ......................................... 31

SPECIFIC OUTCOME: 2ANALYSE AND QUANTIFY RISK EXPOSURE. .............. 32

Possible exposures to risk are identified in a specific situation. (SO 2, AC 1) ..................................... 32

The risks in a situation are analysed and prioritised in terms of frequency and severity. (SO 2, AC 2) 32

Different ways of quantifying the risk are explained for three different scenarios. (SO 2, AC 3) .......... 32

Information from past events is used to quantify the potential severity and frequency of the risks. (SO 2, AC 4) ................................................................................................................................................. 32

2.1POSSIBLE EXPOSURES TO RISK ARE IDENTIFIED IN A SPECIFIC SITUATION. (SO 2, AC 1) ........................................................................................... 33

2.2THE RISKS IN A SITUATION ARE ANALYSED AND PRIORITISED IN TERMS OF FREQUENCY AND SEVERITY. (SO 2, AC 2) ................................................. 36

2.3DIFFERENT WAYS OF QUANTIFYING THE RISK ARE EXPLAINED FOR THREE DIFFERENT SCENARIOS. (SO 2, AC 3) ....................................................... 40

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Role play ........................................................................................................................................... 42

Activity: 04 ......................................................................................................................................... 42

What is possible exposures to risk are identified in a specific situation? (SO 2, AC 1) ........................ 42

Project ............................................................................................................................................... 43

Group Activity: 05............................................................................................................................... 43

Which are the risks in a situation are analysed and prioritised in terms of frequency and severity? (SO 2, AC 2) ................................................................................................................................................. 43


Activity: 06 ......................................................................................................................................... 44

What is different ways of quantifying the risk are explained for three different scenarios? (SO 2, AC 3)44

SUMMATIVE ASSESSMENT ...................................................................... 45

Simulation .......................................................................................................................................... 45

ACTIVITY 01 ..................................................................................................................................... 45

What is information from past events is used to quantify the potential severity and frequency of the risks? (SO 2, AC 4) ...................................................................................................................................... 45

Take some time to reflect on what you have learnt in this module and assess your knowledge against the following pointers. Write down your answers. Should you not be able to complete each of these statements, go back to your notes and check on your understanding? You can also discuss the answers with a colleague. ................................................................................................................................ 46

SPECIFIC OUTCOME:3 INVESTIGATE DIFFERENT WAYS OF MANAGING RISK. 47

Different ways of avoiding risk are researched for a specific situation. (SO 3, AC 1) .......................... 47

Ways to reduce the occurrence of risk are investigated for three different scenarios. (SO 3, AC 2) .... 47

Ways to minimize the effect of risk are investigated for three different scenarios. (SO 3, AC 3) .......... 47

Ways to transfer risk are investigated for three different scenarios. (SO 3, AC 4) ............................... 47

The possibility of eliminating risk in a situating is debated for two different scenarios. (SO 3, AC 5) ... 47

3.1DIFFERENT WAYS OF AVOIDING RISK ARE RESEARCHED FOR A SPECIFIC SITUATION. (SO 3, AC 1) ......................................................................... 48

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3.2WAYS TO REDUCE THE OCCURRENCE OF RISK ARE INVESTIGATED FOR THREE DIFFERENT SCENARIOS. (SO 3, AC 2) ............................................ 50

3.3WAYS TO MINIMIZE THE EFFECT OF RISK ARE INVESTIGATED FOR THREE DIFFERENT SCENARIOS. (SO 3, AC 3) ....................................................... 52


Role play ........................................................................................................................................... 54

Activity: 07 ......................................................................................................................................... 54

What is different ways of avoiding risk are researched for a specific situation? (SO 3, AC 1) ............. 54

Project ............................................................................................................................................... 55

Group Activity: 08............................................................................................................................... 55

What is Ways to reduce the occurrence of risk are investigated for three different scenarios? (SO 3, AC 2) .......................................................................................................................................................... 55


Activity: 09 ......................................................................................................................................... 56

What is ways to minimize the effect of risk are investigated for three different scenarios? (SO 3, AC 3)56

SUMMATIVE ASSESSMENT ...................................................................... 57

Simulation .......................................................................................................................................... 57

ACTIVITY 02 ..................................................................................................................................... 57

What is the possibility of eliminating risk in a situating is debated for two different scenarios? (SO 3, AC 5) .......................................................................................................................................................... 57

Take some time to reflect on what you have learnt in this module and assess your knowledge against the following pointers. Write down your answers. Should you not be able to complete each of these statements, go back to your notes and check on your understanding? You can also discuss the answers with a colleague. ................................................................................................................................ 58

SPECIFIC OUTCOME:4 DEVELOP A PLAN TO MANAGE RISK IN A SPECIFIC SITUATION. ........................................................................................... 59

The risk management process is applied to the top three items on the priority list of risks in a specific situation. (SO 4, AC 1) ...................................................................................................................... 59

A plan is developed to manage the top three items on the priority list of risks. (SO 4, AC 2) ............... 59

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A schedule is compiled for implementing and reviewing the plan. (SO 4, AC 3) ................................. 59

4.1THE RISK MANAGEMENT PROCESS IS APPLIED TO THE TOP THREE ITEMS ON THE PRIORITY LIST OF RISKS IN A SPECIFIC SITUATION. (SO 4, AC 1)...... 60

4.2A PLAN IS DEVELOPED TO MANAGE THE TOP THREE ITEMS ON THE PRIORITY LIST OF RISKS. (SO 4, AC 2) ...................................................... 62


Role play ........................................................................................................................................... 64

Activity: 10 ......................................................................................................................................... 64

What is the risk management process is applied to the top three items on the priority list of risks in a specific situation? (SO 4, AC 1) ......................................................................................................... 64

Project ............................................................................................................................................... 65

GroupActivity: 11 ............................................................................................................................... 65

What is a plan is developed to manage the top three items on the priority list of risks? (SO 4, AC 2) . 65


Activity: 12 ......................................................................................................................................... 66

What is a schedule is compiled for implementing and reviewing the plan? (SO 4, AC 3) .................... 66

REFERENCES ........................................................................................ 67

SECTION C: SELF REFLECTION .............................................................. 68

SELF-ASSESSMENT ................................................................................ 70

LEARNER EVALUATION FORM ............................................................... 71

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SECTION A: PROGRAMME/MODULE INFORMATION

The learning experiences are designed to enable the learners to master

the learning content at the appropriate level.

The Learner Pack for this module contains the following documents/prescribed books:

Learner Orientation Guide

Learner Guide

Prescribed Material

Portfolio of Evidence

Logbook

2.Module Introduction

The module introduction with the facilitator will cover:

Overview of the module, including tasks and activities - expectations

Timetable

The Learner Guide

The Learner Portfolio of Evidence

Assessment: The importance of completing all tasks in the PoE; the neat and orderly

submission of evidence in the PoE; all forms completed and signed

Exit leaning outcomes Component

The Summative Assessment

Programme Assessment timetable schedule

1.Introduction

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3. Purpose of the Module

UNIT STANDARD NUMBER:

15008 Determine risk exposure in order to

manage the risk in a specific situation

LEVEL ON THE NQF:

4

CREDITS:

2

FIELD:

Field 03 - Business, Commerce and

Management Studies

Sub Field:

Finance, Economics and Accounting

PURPOSE:

Explaining the concept of risk in the context of insurance.

Analysing and quantifying risk exposure.

Investigating different ways of managing risk.

Developing a plan to manage risk in a

specific situation.

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Each learning unit has its own learning outcomes and learning activities indicating what

you will achieve in that learning unit.

Formative Assessment (during the learning process) will be conducted throughout the

learning events by completing the activities included in this learner guide.

Summative Assessment (at the end of the learning process) will be conducted based

on the assessment criteria of the relevant unit standard.

Assessment

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1st Semester

Quadmester system divides the academic year into four terms, up to 12 weeks each, and generally

counts the summer as one of the terms.

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Notes to the Learn

Learner Guide Introduction

Dear Learner,

Welcome to this Learning Programme. We trust that this Learning

Programme will be of great value to you during your studies and in your

future career.

To succeed in anything in life requires a lot of hard work.

It will be expected of you to work through this study guide with a great

deal of attention. It provides you with information on how to work

through the material, details exactly what will be expected of you and

what objectives you need to achieve during the study of this Learning

Programme. You will have to:

Complete your assignments with dedication and submit them in time.

Complete the self study sections for your own benefit. The self

study sections provide you with the opportunity to practice what you

have learnt.

Act as adult learners.

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SECTION B: LEARNING MAP

Purpose The purpose of this unit standard is to facilitate learning and to ensure

that learners are able to cope with learning in the context of

learnerships, skills programmes and other learning programmes. Many

adult learners in the FET band have not been in a learning situation for

a long time, and need learning and study strategies and skills to enable

successful progression. Learners competent at this level will be able to

deal with learning materials, to access and use useful resources, to

seek clarification and help when necessary, and apply a range of

learning strategies. They do this with an understanding of the features

and processes of the workplaces and occupations to which their

learning programmes refer.

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Recognition of Prior Learning

(RPL)

RPL is a way of recognising what you already know and can do. You

can receive recognition of existing competency regardless of where,

how and when it was acquired.

For RPL assessment, you need to submit evidence of a skill or

experience. This can be done by compiling a portfolio, being

interviewed, giving a practical demonstration, completing a project, or

by writing a formal ‘test’.

Range of Learning

This describes the situation and circumstance in which competence

must be demonstrated and the parameters in which the learner

operates.

Learner Support Pack

Every learner will receive at least the following resources during this

Learning Programme:

Learner Guide.

Learner Workbook.

The learner workbook must be used in conjunction with this learner

guide for developmental and formative assessment activities.

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Responsibility The responsibility of learning rests with you, so . . .

Be proactive and ask questions.

Seek assistance and help from your facilitator, if required.

Learner Support

Please remember that as the programme is outcomes based – this

implies the following:

a) You are responsible for your own learning. Make sure you

manage your study, research and portfolio time responsibly.

b) Learning activities are learner driven. Make sure you use the

learner guide and workbook in the manner intended, and are

familiar with the portfolio guide requirements.

c) The facilitator is there to reasonably assist you during contact,

practical and workplace time of this programme – make sure

that you have his/her contact details.

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Assessment

How will I be prepared for assessment?

During the programme developmental activities will be conducted to

assist you in preparing for final assessment. For your own benefit,

make sure that you participate fully in all the developmental and

formative assessment activities!

What will I finally be required to do for assessment?

Final assessment will be conducted on the following submission of

evidence:

Knowledge questionnaire.

Portfolio of evidence.

Structured interview.

What will be assessed in the above?

All assessments are conducted strictly in accordance with the unit

standard requirements. Assessment is a way of measuring what you

know and are able to do. When you have learnt something, you should

be able to apply what you have learnt. You may be assessed when you

are sure that you are ready to be assessed. If you do not achieve the

standard the first time, you can be coached or trained further and then

be assessed again later. You will be assessed in a number of ways and

at regular intervals. You will also sit a formal examination at the end of

your studies.

When do I start preparing for assessment?

Right from the start – make sure you are familiar with the assessment

guide/portfolio guide, and start preparing and collecting evidence from

the onset of the programme.

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Formative Assessment

In order to gain credits for this programme you will need to show an assessor that you are

competent in the unit standard. The activities in this programme are designed not only to

bring about your competence but also to prove that you have mastered competence. You

are required to create a file called your portfolio of evidence (POE) to show your assessor

that you have mastered the outcomes of the unit standard. Where you see the POE icon,

you must remove the worksheet from your learner guide and place it in your POE.

Summative assessment

Not all the specific outcomes will be formatively assessed during the programme or in the

workplace. The objective is to create independent and self-sufficient learners. This means

that you will also be required to do independent research and assignments outside the

training room. This work will also need to be presented in your POE. Your assessor and you

will conduct a pre assessment meeting to discuss the assessment process and how you will

collect evidence of your competence. When you are ready, you will advise your assessor that

you are ready for the assessment. The summative assessment activities are indicated at the

end of the learning guide. If your summative assessment is conducted using observation,

role plays or verbal assessment, place a signed copy of the checklists, once completed by the

assessor/assessment panel, in your POE.

ICONS

Icons Type of assessment Description

Formative knowledge

assessment:

This comprises of questions

to assess your knowledge.

You must obtain at least

80% in each assessment

criterion.

Self-reflexive assessment You will be required to

answer a few reflexive

questions.

Teamwork Self-Assessment

Form

After you completed this

course, you will be required

to assess your own

behaviour regarding team

work.

Work place experience After you completed this


to assess your own

behaviour regarding work

experience.

Project research After you completed this


to assess your own

behaviour regarding

reseach.

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15008

SAQA ID:15008Determine risk exposure in order to manage the risk in a specific situation

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Instruction key

We will use the instruction key icons below. Pay attention to these icons.

Take note

Definition

Example

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Learning Map

LEARNING UNIT: 01-Explain the concept of risk in the

context of insurance.

LEARNING UNIT: 02Analyse and quantify risk exposure. -

LEARNING UNIT: 03Investigate different ways of managing risk. -

LEARNING UNIT: 04-Develop a plan to manage risk in a specific

situation.

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Competencies

Skills to:

Explaining the concept of risk in the context of insurance.

Analysing and quantifying risk exposure.

Investigating different ways of managing risk.

Developing a plan to manage risk in a specific situation.

http://www.google.co.za/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=Zzb39Jt1ArQIAM&tbnid=xfPH4oExiUsLaM:&ved=0CAUQjRw&url=http://www.businesswest.co.uk/business-solutions/skills-for-business&ei=g6ofUtqeCcaZ0QX6xYHgDw&bvm=bv.51495398,d.d2k&psig=AFQjCNFB7YXd9GLJ5TBhCBl5j-ePjWm7Vw&ust=1377893191425707

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SPECIFIC OUTCOME:1 Explain the concept of risk in the context

of insurance.

Learning Outcomes

On completion of this section you will be able to: Explain the

concept of risk in the context of insurance.

Assessment Criteria

The concept of risk is explained with reference to subject matter and event in the context of insurance. (SO 1, AC 1)

The concepts of frequency and severity are explained and an indication is given of the relationship between the two concepts. (SO 1, AC 2)

Different types of risk are named with examples. (SO 1, AC 3)

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1.1The concept of risk is explained with reference to subject

matter and event in the context of insurance. (SO 1, AC 1)

Production of Information

All governments accept the responsibility of providing information services to the sector,

particularly national statistics and data relevant to economic and development planning. For

the development of a new sector, such as aquaculture, many governments accept the

responsibility for additional information services, such as the adoption of international and

national standards and codes of practice, and also biotechnical and non-biotechnical

research.

(i) Standards and codes of practice

Standards and codes of practice for the industry are invaluable, not only to the economic

strength of the industry as a whole, but also to the farmers and their suppliers to reduce

their individual risks (see Section 4.2). For example, the international Codex Committee on

Fish and Fishery Products recently (May 1988) decided to elaborate a code governing the

quality and safety of aquaculture products. Typical aspects of the code will be product

safety and quality, water quality, off-flavours, residues of veterinary drugs, and the public

health significance of diseases and parasites.

Where the code is adopted, the farmers have the opportunity to meet the standards

required. Meeting strict standards will probably require increased investments, such as

modern and hygienic processing plants, and this will reduce their profitability. On the other

hand, meeting the standards will eliminate most of the risks currently associated with the

"grey" areas of quality control, where the products are rejected because there is no clean

division between acceptability and unacceptability.

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The only other code of practice indirectly relevant to aquaculture which can be adopted by

certain countries at the present time is that dealing with the introduction and transfer of

species. The prime reason for the code is conservation, but it has both positive and

negative implications for the aquaculture industry.

No country, or group of countries, has yet established any standards specifically for the

aquaculture industry. Invariably each country has its own standards and codes for

construction of infrastructure and buildings which are used automatically by designers and

contractors of large farms; but these are invariably ignored by the small farmers in the

interests of saving investment capital. Unfortunately, as such standards have been

developed without any reference to the aquaculture industry at all, the risks to the

operations at both large and small farms remain. The large farm is probably over-

engineered and highly mechanical (see Section 2.1.1 (i)), and the small farm is a hazard to

the health and safety of the employees (see 4.2 (vi)).

(ii) Research information

Most governments support industrial-related research, either at government research

centres or through contract research to the private sector. Although the topics of research

clearly have some relevance to the industry, most governments do not specify research

programmes within their policy which directly support the core of the industry, namely the

producers. The majority of support is for scientists and technologists at universities and

research centres who identify their own research objectives.

There has been little or no research organized to build up the information base on which

standards and codes of practice are set. For example, government research support has

been given to individuals to design production units, complete with heat exchangers, filters,

and innumerable controls, but few if any research funds have been given to chemical

engineers to specify the leaching rates and toxicity of plasticizers in water of varying

salinities from all the plastic materials which are used or available to the manufacturers.

If this were done, then the industry would have the factual evidence that specific plastic

materials were safe at these salinities, and others were not. The risks of death or deformity

to the stock from these highly toxic petro-chemicals would be removed.

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There are many other cases which may be cited. For example, there is a need for the basic

data of on-site conditions (wave amplitude, water exchange rates, etc.) for offshore cages

Co match the design criteria. This not only includes the physical data (strengths, stresses,

and strains) of materials, but also the same parameters for individual cages and complexes

of cages under different conditions of sea state. There is a considerable need for

information about the safe treatment of diseases, not only the efficacy of the treatment, but

also the periodicity for the residues of the drugs.

.

1.2The concepts of frequency and severity are explained and an indication is given

of the relationship between the two concepts. (SO 1, AC 2)

Quantifying risks is as important to the farmer and his enterprise as identifying risks. This is

an important activity as it assists in placing risks in some order of priority and highlights

decisions to be made.

There are two elements of each risk which need to be quantified before any assessment

can be made of the cost and economics of controlling it reliably. These are:

- The frequency of the risk occurring, and

- The cost and economic consequences of it occurring.

This quantification of risk is fundamental to almost all the commercial decisions which may

be taken about an enterprise. Such decisions may include cancellation of the investment

altogether if the risks are too great in relation to the expected financial return. If the decision

is to go ahead, then the initial investment capital must be sufficient to start and operate the

business and to cover the risks it faces or to divert the costs of the risks elsewhere, for

example, to insurance. Unfortunately the record of the aquaculture industry shows that

many farmers did not make this type of analysis, or have the right level of risk capital

available at the start of their projects.

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The principal decisions facing the farmer, the investor, can be sub-divided into three

categories, namely:

- Commercial decisions. These are the basic decisions about business, and are made

through financial comparison of the anticipated return on investment with the cost of any

risk if it occurs. In the worst case, of course, it may be decided that the risks and uncertainty

of doing business in the way proposed are too great, and the investment is not made.

- Mitigation and control decisions. These are the decisions specific for each risk which must

be made if its impact is to be reduced or eliminated altogether. If the risk is only to be

reduced, then it is important to decide to what acceptable level, and at what cost.

- Financing decisions. These are the decisions which deal with ways of financing the risk

(for example, by insurance), and their acceptability.

Unfortunately, at the present time in the emergent status of the aquaculture industry, the

quantification of risks remains very individualistic for the farmer and his farm. The modern

aquaculture industry has developed far within the last two decades, but with little in the way

of standards and codes of practice. This includes not only standards and codes for

buildings, and installation and operation of equipment, but also professional standards for

producers, as well as in the support services of education, training, and even the

qualifications of consultants.

Observing national standards and codes of practice for construction of the major farm

buildings and installing the major utilities are usually the limit of professional inputs into any

farm site. After that, any internal fabrication, the construction of special rooms, the erection

of tanks and units, the water distribution system, the internal electrical and water systems,

etc., are invariably constructed by the farmer and his employees. Consequently there is

little in the way of basic information which has been built up and recorded over the years

which makes quantification a simple matter of reference. Quantification has to be done the

hard way, through research and analysis by the individual concerned.

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1.3Different types of risk are named with examples. (SO 1, AC 3)

Cycles, reproduction, physiology, and pathology, as well as engineering data about

materials. Unfortunately this information is either in scientific literature not readily available,

in archives of organizations not associated with the industry, or simply not available at all.

Moreover, the data may not have been "processed" in a way readily comprehensible to the

work in hand, namely quantifying risk.

However, in spite of all the difficulties at the present time, quantification of the risks can be

estimated intelligently if the appropriate information is assembled.

A simple check-list of the type of information which must be assembled includes the

following:

(i) Environmental data

- Climatology Basic weather data, and incidences of extremes

- Hydrology Basic physical data of waterbodies (range of tides, wave direction,

pitch, etc.), water chemistry, and all seasonal changes

- Geology Topography, soil composition, and chemistry

(ii) Biological data

- Species data Life history cycle, basic physiology, reproduction

- Species

pathology

Specific diseases, incidences, treatment, efficacy of treatment, known

epidemics, regulations regarding diseases

- Aquatic

biology

Plankton profile and seasonal blooms

(iii) Production data

- Carrying

capacity

Stock densities, handling

- Feeding Feeding rates, feeding behaviour

- Harvest Size, methods, handling

(iv) Engineering data

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- Site works Standards and codes of practice for facility construction (tanks, cages,

rafts), water systems, moorages

- Operations Alarm systems

(v) Social data

- Employees Regulations for health and safety, working conditions

- Non-

employees

Local conditions, level of unemployment

(iv) Economic

data

Costs of design services and construction, operating costs, marketing

data, production profiles, internal rates of return

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Formative assessment

Role play

Activity: 01

Instructions What is the concept of risk is explained with reference to

subject matter and event in the context of insurance? (SO

1, AC 1)

Method individual Activity

Media Method Flipchart

CCFO

DEMONSTRATING

Marks 10

Notes:

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Project

Group Activity: 02

Instructions Which are the concepts of frequency and severity are

explained and an indication is given of the relationship

between the two concepts. (SO 1, AC 2)

CCFO

COMMUNICATING

Method Group Activity


Notes:

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Research PROJECT

Activity: 03

Instructions Which are different types of risk are named with

examples? (SO 1, AC 3)

CCFO Collecting



Notes:

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SPECIFIC OUTCOME: 2Analyse and quantify risk exposure.

Learning Outcomes

On completion of this section you will be able to: Analyse and

quantify risk exposure.

Assessment Criteria

Possible exposures to risk are identified in a specific situation. (SO 2,

AC 1)

The risks in a situation are analysed and prioritised in terms of frequency and severity. (SO 2, AC 2)

Different ways of quantifying the risk are explained for three different scenarios. (SO 2, AC 3)

Information from past events is used to quantify the potential severity and frequency of the risks. (SO 2, AC 4)

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2.1Possible exposures to risk are identified in a specific situation. (SO 2, AC 1)

Absorb the Risk

Absorbing a risk is one management technique appropriate to certain types of risks. The

financial investment behind a farming enterprise should therefore be sufficient to withstand

the occurrence and financial consequences of most risks. Typical pure risks which fall into

this category are the normal fluctuations in market prices of products, changes in

international currency rates, and increases in labour costs, etc. There are also a number of

business risks, such as increases in the price of feed due to (say) sudden shortages of fish

meal, and breakdown of machinery.

However, absorbing risks requires positive action on the part of management and not

simply acceptance that the enterprise can withstand the loss should it occur. This may

require a certain level of financial liquidity by reserving a fixed percentage of the profits in a

sinking fund, or strict regard to specific practices. Investors in the industry, and more by

default than planned strategy, continue to absorb potential risks without maintaining the

required liquidity, and pay the consequences. Others, so far, have been lucky.

In view of the high risk category of the aquaculture industry it is important to have a

business plan and management strategy which anticipate absorbing certain risks.

Organization, Industrial Standards, and Codes of Practice

Managing and controlling risks are the responsibility of the industry as a whole. This is

brought about by individuals recognizing the specific responsibilities within their own

particular branch of the industry, and by professional associations and groups of individuals

working together to improve organization, to set appropriate standards, and to adopt codes

of practice.

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The following examples illustrate only some of the issues currently of concern to the

industry which can alleviate some of the high risks.

(i) Selection of the site

The basic organization of the farm and its subsequent operations begin with the selection of

the site. Unfortunately there is considerable misconception about the site selection process,

which is clearly very important. With almost certain probability, no site is perfect. The

prospective farmer is not able to select a site which meets all the criteria which he or others

might have assembled. The farmer has to compromise different criteria and, in practice, the

farm site selects itself.

The location of the majority of farms is determined by the principal factors which govern the

availability of appropriate land and access to suitable water. Land ownership or water rights

are therefore the two main criteria. Consequently most farms are sited by Individuals who

already own potentially suitable land, or have access to potentially suitable water; or,

alternatively, are the only locations for which a sale or lease can be made.

By far the minority of farm sites were developed on the best sites and under the best

conditions. Consequently the majority of farm sites are a compromise of factors. Depending

on what those factors are introduces the first element of risk to the business. For example,

the land might be flat and less costly to develop, and provides opportunity for expansion;

however, it is not as close to the water as it should be. As a result, larger pumps have to be

installed, the water delivery system is lengthier, and (possibly) the water line crosses a road

requiring substantial protection. Although the costs might compensate each other, the risk

of mechanical failure is increased, including an added risk of fracture of the life support

system as it crosses the road.

(ii) Pilot scale projects

A procedure important to the development of a particular farm or enterprise, but not

necessarily considered a standard procedure, is the pilot-scale project. If the investment is

in a farming practice which has been well established and proven in the area, then a pilot-

scale project is probably not economically justified as a number of the risks have been

identified, reduced, or eliminated. On the other hand, if the investment is in a new

technology, with little or no prior practice in the area, then the pilot project should be used to

assist in identification of unknown risks, and to provide the real quantification of those risks.

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Expansion of the pilot-scale project does not take place until the risks are manageable and

controlled economically, and farm operations are trouble-free to the trained employees.

There is always a considerable element of risk inherent in the process of expansion, no

matter how well prepared the process might be. However, there is a considerable difference

between the well-researched calculated risk, and pure chance. The farm designed around

the built-in risk management approach has a far better chance of achieving organized and

profitable expansion than one which expands on the strength of a good financial statement.

(iii) Engineering standards

Professional engineers have been slow in entering the business of aquaculture. Civil and

mechanical engineers have rightly been used by many farmers for the design of facilities,

but agricultural and marine engineers have not recognized the aquaculture field as one to

which their backgrounds can readily be applied to the research and development needs of

the industry. Consequently the industry has been slow in producing the fundamental

engineering information from which standards and codes of practice are set.

A specific example is the marine engineering associated with the construction and moorage

of floating cages and rafts, particularly in the open sea. The engineering principles and

practices relevant to the construction of floating piers, floating breakwaters, buoys and

navigational lights, etc., in the marine environment are well established. However, so far,

this information is not readily accessible in the type of engineering databooks which are

published for the agriculture industry.

Consequently the farmer has to call on experienced individuals in the maritime industry to

give him specific guidance, or to advise where the appropriate data might be found. Typical

individuals are master mariners, marine engineers, marine surveyors, coast guards, and

meteorologists. As a last resort, the farmer may have to undertake experimental studies

himself.

Under these circumstances, the risk management task for much of the relevant aquaculture

engineering is one of research. It is research for specific experimental site studies, and

research for information which must be pieced together.

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In recent years, the manufacturers of large marine facilities, such as floating cages, rafts,

and breakwaters, have taken the initiative to provide engineering services. They supply

expert services to analyse the proposed location and to recommend the appropriate

configuration of the facilities and the moorage system recommended. In doing so they

accept the responsibility of the failure of the system, thus releasing the farmer from one

small group of risks. It is therefore a valid risk management action on the part of the farmer

to purchase his facilities from a manufacturer who provides these fundamental and

probably repeated services.

In their own turn, of course, the manufacturers are taking a risk. This risk they will have

analysed and costed, and will have decided that they can withstand the liability in the event

of any occurrence, and indemnify the farmer for the loss of equipment and stock.

2.2The risks in a situation are analysed and prioritised in terms of frequency and

severity. (SO 2, AC 2)

Professional standards

For many reasons, a farmer has inevitably to seek professional assistance either to plan the

farm, or throughout its subsequent operations. Although not readily recognized as such,

expert consultation is a risk to the farmer, and it is essential that this risk is managed like

any more obvious one.

There are many professionals in the industry, predominantly technical people who provide

professional services to the farmer either individually, or through companies. Most adopt

high standards in the services they give to their clients, but there are also many who are

totally unqualified to provide certain services. For example, the majority of professional

experts have not been in the business themselves as farm owners and producers; the

majority are scientists and technical individuals, who have probably worked on a

government research farm at the most, yet many are quite prepared to sell services to a

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farmer which may include production programming, the recommendation of harvesting

schedules, and even financial planning.

Although there are professional associations of scientists and engineers which maintain

qualifications and standards, there are no such associations among the professional

aquaculture experts. Few individuals, if any, carry liability insurance coverage. The

exceptions are the large professional companies, usually in developed countries, which

provide a range of services, such as design engineering. In some countries, design

engineers are required to carry liability insurance by law. Other professionals in the

company, similarly, should be insured.

Unfortunately many investments in the aquaculture sector have been lost as a result of

professional individuals greatly overstepping their ability to provide the services required.

Investments were therefore made in projects which were ill-conceived, inadequately

researched and planned, and poorly implemented. However, the investor must share the

responsibility as much as the incompetent professional. A sound risk management

approach by the investor would have determined that the professional was not capable of

giving the services required.

It is an important part of the risk management approach not only for the investor to research

the background and experience of the professional thoroughly but, like the medical

profession, obtain a second opinion of the recommendations being made by the

professional.

The solution to competence and professionalism is not easy. Aquaculture, in many

respects, is an "emotional" industry, with considerable pulling power for both producers and

professionals. Many people enter the industry irrationally, deceived by its apparent

simplicity as a result of shortcomings of many so-called experts. The investors are in many

ways to blame. Although possibly anticipating a substantial loan for the construction and

operation of the farm, the entrepreneur invariably has to pay from his own resources the

cost of pre-feasibility and feasibility studies. The project might be substantial, but the

investor spares little money of his own in preparation. Consequently he gets the preliminary

services which he pays for.

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The professionals are also to blame, particularly if they avoid responsibility for their

mistakes. Enforcing liability, where it does exist, is not always practical or feasible. Some

professionals do not carry liability insurance, but, when they do, it is probably unreachable

as they are resident in other countries.

However, in the long term, it will be important for the professionals in the industry to police

their ranks through accredited associations. The associations will be required to set

standards and codes of practice for their members, and to ensure that each carries

professional indemnity insurance. Such associations would be an attraction to the farmer as

they would alleviate many of the risks of seeking professional help by offering him a chance

of redress in the case of the professionals' malpractice.

The treatment of disease

Disease of the stock is one of the main risks to the profitability of the farm. Diseased

animals and plants are often unsaleable. Invariably they require costly treatment, and the

costs are not always recoverable once the disease is eliminated. Moreover, the stock may

still not be marketable until all residual chemicals have been cleaned from the body.

Many countries have laws and regulations regarding the movement, handling, and

marketing of diseased stock to reduce the risk of spreading disease. Few, if any, compel

total destruction of all stock on the farm as governments have no provision to pay

compensation to the producers.

For some of the most common diseases, effective vaccines have been developed and are

commercially available. This is the most prudent management option for the producers to

avoid or minimize all the risks associated with disease on the farm. However, in view of the

incidence and frequency of disease in the industry, government research remains equally

important as part of its supporting services.

Workers' health and safety

Aquaculture is an industry which has attracted the participation of a large number of

individuals, the majority of whom have never received any basic education or training in its

systems or practices. Only in the last five years has there been a steady stream of trained

individuals entering the industry to join those whose training was received "on the job".

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However, both groups are quite clearly dedicated to the emerging industry. The majority of

the work force in the industry is comparatively young.

The low average age of the work force is probably fortunate. On the whole farming aquatic

animals and plants, like agriculture, is a hard way of life, requiring attention seven days

each week, fifty-two weeks of the year. Compared with agriculture, working conditions in

the industry are not good. The work is hard, at times boring, and often dangerous. For

example, operating complexes of floating cages in isolated coastal areas in winter is not

appealing. Fortunately the "frontier spirit" of the industry makes many of these hardships

endurable.

Of course the benefit of the frontier spirit will not go on for ever. Already, in fact, there is

evidence that the production and profitability of farms have been reduced by social

problems often associated with working in remote locations or on offshore sites. There is

also evidence that lives of employees have been lost, both through accidents at sea with

heavy lifting equipment, and in gun-fights with poachers (e.g. in the Philippines).

One of the priority tasks for the industry at the present time is a set of standards for the

health and safety of its work force. From the point of view of the risk management process,

there is the need for a group of professional individuals to set standards specifically for the

aquaculture industry. It is not sufficient to rely on the standards of other industries (such as

agriculture, or fisheries) to serve the industry. With new standards, the industry will develop

a core of dedicated and disciplined men and women on whom the farmer can rely.

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2.3Different ways of quantifying the risk are explained for three different scenarios.

(SO 2, AC 3)

National policy toward aquaculture development is important for the industry. This may be

no more than including statements about the sector in a five-year economic development

plan, or it may be a detailed development plan for aquaculture alone.

With the recognition of the aquaculture sector in any development plan, there invariably

follows a number of policy instruments for government administrators to manage the sector

and control individual private investments. The range and use of these policy instruments

are usually in direct relationship to the status and strength of the sector. For example, in

countries where investment in the sector is being encouraged, the government will stress

incentives, such as grants, loans, and subsidies, and even fiscal incentives, such as

exemptions from tax. In countries where the sector is well developed the government will

invariably impose duties, taxes, and quotas.

In the formative years of a sector, a government will often provide services. These may

include services for marketing, research and development, education, training, extension,

and technical information. It will also often provide physical infrastructure for the industry

(utilities, transportation, and coastal development), and institutional support (such as state

farms, state hatcheries, and market organizations).

In summary, the government policy toward the industry through the use of available policy

instruments can be considerable.

The majority of farmers obviously take advantage of a favourable government policy toward

the sector. Many, in fact, in the formative years of their enterprise depend on government

incentives, such as grants, loans, and subsidies, to be profitable.

The risk to the farmer is the period of transition, when the sector is developing well and

reasonably independently, and the government is reducing its direct support to the industry.

Incentives are being replaced by taxes and levies on sales, state farms and government

hatcheries may be closed down, and institutional support is stopped.

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These risks can be managed through a very detailed exchange of information by both

parties. It is imperative chat the government has an excellent knowledge of the workings of

the industry so that its objectives are appropriately phased. For example, there is no

economic sense in closing down government hatcheries (which supplied seed for the

farmers to get the industry established) if alternatives are not in place and have

demonstrated that they can meet the seed requirements of the industry. Similarly, sudden

high taxes on profits, which perhaps were made when national production was low and

prices probably high, are not going to be practical if national (and international) production

increases and the price drops, as has been the case of marine shrimp and salmon

production.

On the other hand, it is also imperative that the farmers have good information about the

short and long-term plans of the government toward the industry. With this information their

investments can be directed toward the replacement of the government's previous

contributions. For example, the investment in private hatcheries for seed production, the

formation of farmers' associations, and other organizations, for marketing and product

promotion, and even private research and development.

Invariably the burden of researching and publishing this information from both sides rests

with the industry. Usually the responsibility is taken up by the farmers' associations, through

their newsletters and publications, or by another invaluable component of the national

aquaculture sector, the independent publishers of trade papers, magazines, and

information bulletins.

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Role play

Activity: 04

Instructions What is possible exposures to risk are identified in a

specific situation? (SO 2, AC 1)



CCFO

DEMONSTRATING

Marks 10

Notes:

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Project

Group Activity: 05

Instructions Which are the risks in a situation are analysed and

prioritised in terms of frequency and severity? (SO 2, AC

2)

CCFO

COMMUNICATING



Notes:

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Research PROJECT

Activity: 06

Instructions What is different ways of quantifying the risk are explained

for three different scenarios? (SO 2, AC 3)

CCFO Collecting



Notes:

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Simulation

ACTIVITY 01

Instructions What is information from past events is used to quantify

the potential severity and frequency of the risks? (SO 2,

AC 4)

CCFO

ORGANISING



Mark

Notes:

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Essay

Take some time to reflect on what you have learnt in this module and assess your

knowledge against the following pointers. Write down your answers. Should you not

be able to complete each of these statements, go back to your notes and check on

your understanding? You can also discuss the answers with a colleague.

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SPECIFIC OUTCOME:3 Investigate different ways of managing risk.

Learning Outcomes

On completion of this section you will be able to: Investigate

different ways of managing risk.

Assessment Criteria

Different ways of avoiding risk are researched for a specific situation. (SO 3, AC 1)

Ways to reduce the occurrence of risk are investigated for three different scenarios. (SO 3, AC 2)

Ways to minimize the effect of risk are investigated for three different scenarios. (SO 3, AC 3)

Ways to transfer risk are investigated for three different scenarios. (SO 3, AC 4)

The possibility of eliminating risk in a situating is debated for two different scenarios. (SO 3, AC 5)

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3.1Different ways of avoiding risk are researched for a specific situation. (SO 3, AC

1)

Risks in any business are inevitable and they cannot be eliminated completely. But an

entrepreneur can control and minimise their negative consequences by adopting a suitable

risk management strategy. The various methods that may be used for handling business

risks are as follows:-

An entrepreneur can avoid some of the risks by analysing the potential results

(losses or gains) of the activity that gives rise to those risks. The risk is worth taking

if the outcome ultimately benefits the firm. Otherwise, such an action should be

avoided as far as possible. The risk may be avoided by substituting the risky

process with a relatively safer alternative.

If the entrepreneur cannot avoid the risk, he should try to control and minimise the

losses arising from the risk. This can be done through efficient planning and proper

risk management techniques. The main techniques that can be employed by a firm

are as follows:-

Many business risks arise due to errors in planning. Thus scientific

forecasting and marketing research of future economic conditions can help

the management to make appropriate plans for the enterprise in advance.

This will make them aware of likely opportunities and threats to the business

environment in future. Accordingly, the entrepreneur can make required

changes in its products, prices of the products, its distribution channels and

sales promotion techniques.

A firm can reduce the losses arising from technological obsolescence

through continuous technological research and development in the

organisation. Thus, it can develop new and remunerative products before the

present products become obsolete.

Credit screening and control through careful screening of the customers;

prompt collection of the outstanding debts and tight inventory control will also

help the firm to reduce the amount of risks.

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Various safety programmes like:-

Fire fighting equipment and sprinkler system will help in preventing the losses

caused by fire

Burglar alarms, night watchman, and safety vaults will help in reducing thefts,

burglary, etc

Cold storage or refrigeration will help in preservation of perishable products of the

firm and thus reduce the damages caused to the products

Special packing will help in reducing any spoilage, breakage or leakage of the

goods in transit or storage

Proper pest control methods will also help in reducing the damages caused to the

products

Safe work environment including adequate lighting, covering of damaged floors as

well as proper medical care facilities will help in reducing the number of accidents in

the factory.

Risk of competition can be reduced through collective action by the

competing firms which may agree to restrict output, allocate markets or

charge uniform prices.

Proper Government action through appropriate policies and regulations can

also help in stabilising the economic environment and thus reducing the

business risks.

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3.2Ways to reduce the occurrence of risk are investigated for three different

scenarios. (SO 3, AC 2)

An entrepreneur must assume the possibility of certain risks which are inherent in any form

of business organisation. Such risks can be handled through proper planning and adopting

two possible strategies. These are:-

Shifting the risks to the people who are skilled in managing them and are willing to bear

them. The risks may be transferred or shifted through:-

Hedging:-It is a method of risk transfer accomplished by buying and selling for future

delivery. It is a form of forward trading to minimise losses due to changes in prices. Under

it, the possibility of loss which occurs because of price fluctuations, is shifted during the

time gap between purchase and sale of a commodity. It involves entering simultaneously

into two contracts of an opposite though corresponding nature, one in the spot or cash

market and the other in the future market. The purpose of hedging is to protect the trade

profit from adverse fluctuations in commodity prices.

Underwriting:-A public company issuing shares and debentures may face the risk of loss

due to the failure to sell the entire issue of securities. Such risk can be shifted to an

underwriter which is the financial intermediary between the company issuing securities and

the ultimate investors. It provides several benefits to a company:-

(i) It relieves the company of the risk and uncertainty of marketing the securities.

(ii) Underwriters have an intimate and specialised knowledge of the capital market.

They offer valuable advice to the issuing company in the preparation of the

prospectus, time of floatation and the price of securities, etc. They also provide

publicity service to the companies which have entered into underwriting agreements

with them.

(iii) It helps in financing of new enterprises and in the expansion of the existing projects.

(iv) It builds up investors' confidence in the issue of securities. The association of well-

known underwriters lends prestige to the company and the investors feel that the

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issue is sound enough for profitable investment. Also, the securities underwritten by

reputed underwriters receives better response from the public.

(v) The issuing company is assured of the availability of funds. Important projects are

not delayed for want of funds.

(vi) It facilitates the geographical dispersal of securities because generally, the

underwriters maintain contacts with investors throughout the country.

Subcontracting: - is an inter-firm relationship, where a small firm may produce different

components, intermediate inputs and final output or it may provide various assembling

activities, etc. for the parent firm. Such small firms are generally known as the

subcontractors.

The need for subcontracting arises when a firm undertakes a business which extends over

a long period of time or which requires the specialised services of several experts. In such a

situation, the firm may face risks resulting from rise in prices of materials, labour or other

imports. Such risks may be shifted to other firms through subcontracting. For instance, a

building construction firm may engage subcontractors for timbers, glasses, electric wiring,

plumbing, cement, etc.

Sharing the risks with other people so as to minimise the burden on the firm. Generally

pooling of the investment of a large number of persons into the organisations helps in

spreading the risks over a large number of shareholders. However, insurance is the most

important and prevalent device for risk sharing.

'Insurance' may be defined as a contract in writing under which one party agrees to

indemnify the other party against a loss or damage suffered by it on account of an uncertain

future, in return for a consideration called 'premium'. The person/business who gets its

life/property insured is called 'Insured/Assured'. The agency which helps in entering into an

insurance arrangement is called 'Insurer' or 'Insurance company'. The agreement or

contract which is put in writing, is called a 'policy'. An insurance policy provides the

following benefits to a business concern:-

Protection: - it provides protection against risk of loss and a sense of security to the

businessmen.

Diffusion of risks: - as the burden of loss is spread over a large number of people.

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Credit standing: - of the firm is enhanced as the businessman can easily transfer some of

his risks to an insurance company.

Continuity and certainty of business: - if all the risks were to be borne by the

businessmen themselves, the business operations would have been uncertain and halting

in character.

Better utilisation of the capital of the firms: - as the Insurance companies take over the

risk, it enables the business firm to invest and optimally utilise its capital.

3.3Ways to minimize the effect of risk are investigated for three different scenarios.

(SO 3, AC 3)

Uncertainty, risk and insecurity are incidental to any form of business. This makes

insurance indispensable for a business organisation. Insurance may be defined as a

contract in writing under which one party agrees to indemnify the other party against a loss

or damage suffered by it on account of an uncertain future, in return for a consideration

called 'premium'.

The person/business who gets its life/property insured is called 'Insured/Assured'. The

agency which helps in entering into an insurance arrangement is called 'Insurer' or

'Insurance Company'. The agreement or contract which is put in writing, is called a 'policy'.

An insurance policy provides the following benefits to a business concern:-

Protection: - it provides protection against risk of loss and a sense of security to the

businessmen.

Diffusion of risks: - as the burden of loss is spread over a large number of people.

Credit standing: - of the firm is enhanced as the businessman can easily transfer

some of his risks to an insurance company.

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Continuity and certainty of business:-if all the risks were to be borne by the

businessmen themselves, the business operations would have been uncertain and

halting in character.

Better utilisation of the capital of the firms: - as the Insurance companies take

over the risk, it enables the business firm to invest and optimally utilise its capital.

Thus, the aim of insurance is to compensate the owner against the losses arising from a

variety of risks which he anticipates to his life, property and business. It is a means of

pooling of risks, under which a group of people who are subject to an insurable risk

contribute regularly to a fund. The fund so created is utilised to compensate those members

of the group who actually suffer a loss due to some unexpected calamity. Thus the loss of a

few is shared by all the members on an equitable basis.

In India, insurance is mainly of two types i.e. life insurance and general insurance. All

issues relating to both the types of insurance policies fall within the domain of Insurance

Division in the Ministry of Finance. In order to protect the interests of holder of insurance

policy and to regulate, promote and ensure orderly growth of the insurance industry, the

Government of India has set up the Insurance Regulatory and Development Authority

(IRDA). The authority has been issuing regulations covering almost the entire segment of

insurance industry including insurance agents, solvency margins, re-insurance, registration

of insurers, obligations of insurers to rural and social sector, accounting procedures, etc.

http://business.gov.in/outerwin.php?id=http://finmin.nic.in/

http://business.gov.in/outerwin.php?id=http://www.irdaindia.org/

http://business.gov.in/outerwin.php?id=http://www.irdaindia.org/

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Role play

Activity: 07

Instructions What is different ways of avoiding risk are researched for

a specific situation? (SO 3, AC 1)



CCFO

DEMONSTRATING

Marks 10

Notes:

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Project

Group Activity: 08

Instructions What is Ways to reduce the occurrence of risk are

investigated for three different scenarios? (SO 3, AC 2)

CCFO

COMMUNICATING



Notes:

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Research PROJECT

Activity: 09

Instructions What is ways to minimize the effect of risk are investigated

for three different scenarios? (SO 3, AC 3)

CCFO Collecting



Notes:

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Simulation

ACTIVITY 02

Instructions What is the possibility of eliminating risk in a situating is

debated for two different scenarios? (SO 3, AC 5)

CCFO

ORGANISING



Mark

Notes:

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Essay

Take some time to reflect on what you have learnt in this module and assess your

knowledge against the following pointers. Write down your answers. Should you not

be able to complete each of these statements, go back to your notes and check on

your understanding? You can also discuss the answers with a colleague.

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SPECIFIC OUTCOME:4 Develop a plan to manage risk in a specific situation.

Learning Outcomes

On completion of this section you will be able to: Develop a

plan to manage risk in a specific situation.

Assessment Criteria

The risk management process is applied to the top three items on the priority list of risks in a specific situation. (SO 4, AC 1)

A plan is developed to manage the top three items on the priority list of risks. (SO 4, AC 2)

A schedule is compiled for implementing and reviewing the plan. (SO 4, AC 3)

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4.1The risk management process is applied to the top three items on the priority list

of risks in a specific situation. (SO 4, AC 1)

Some experts have said that a strong risk management process can decrease problems on

a project by as much as 80 or 90 percent. In combination with solid project management

practices, having a well-defined scope, incorporating input from the appropriate

stakeholders, following a good change management process, and keeping open the lines of

communication, a good risk management process is critical in cutting down on surprises, or

unexpected project risks. Such a process can also help with problem resolution when

changes occur, because now those changes are anticipated and actions have already been

reviewed and approved, avoiding knee jerk reactions.

Defining "Risk"

Before one can embark on a risk management process, one must have a solid

understanding of some key definitions. Project risks as defined from a PMI perspective are,

at their core, unknown events. These events can be positive or negative, so that the word

"risk" is inherently neutral. That said, most of the time and focus is spent handling negative

project risks, or "threats," rather than positive project risks, or "opportunities."

Often, companies that do perform a risk management process on a fairly typical multi-

month project (no longer than 12 months) will identify and manage possibly five to ten

easily recognised project risks. However, that number should in fact be much higher. With a

high number of project risks identified early on, a team's awareness of what to look for is

increased, so that potential problems are recognised earlier and opportunities are seen

more readily.

It may seem that project risks cannot be managed without taking away from the actual work

of the project. However, this can effectively be accomplished with a seven-step risk

management process that can be utilised and modified with each project.

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The Risk Management Process

Step one of the risk management process is to have each person involved in the planning

process individually list at least ten potential risk items. Often with this step, team members

will assume that certain project risks are already known, and therefore do not need to be

listed. For example, scope creep is a typical problem on most projects. Yet it still must be

listed because even with the best practice management processes in place, it could still

occur and cause problems on a project over time. Therefore it should be addressed rather

than ignored.

Step two of the risk management process is to collect the lists of project risks and compile

them into a single list with the duplicates removed.

Step three of the risk management process is to assess the probability (or likelihood), the

impact (or consequence) and the detectability of each item on the master list. This can be

done by assigning each item on the list a numerical rating such as on a scale from 1 to 4 or

a subjective term such as high, medium, or low. Detectability is optional, but it can be

simple to assess - if a risk is harder to see, such as with scope creep, then it's a riskier

item. If it's easier to catch early, such as loss of management support or loss of a key

resource, then it's lower risk.

Step four of the risk management process is to break the planning team into sub-groups

and to give a portion of the master list to each sub-group. Each sub-group can then identify

the triggers (warning signs) for its assigned list of project risks. All triggers should be noted,

even minor ones. Normally there will be at least three triggers for each risk.

Step five of the risk management process is for those same sub-groups to identify possible

preventive actions for the threats and enhancement actions for the opportunities.

Step six of the risk management process is for the sub-groups to then create a contingency

plan for most but not all project risks - a plan that includes the actions one would take if a

trigger or a risk were to occur. This plan will be created for those risks scoring above a

certain cut-off point, which is determined after looking at the total scores for all risks. This

keeps the risk management process manageable. The risk management process is not

effective if it is so time-consuming that it is never done.

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Step seven, the final step in planning the risk management process, is to determine the

owner of each risk on the list. The owner is the person who is responsible for watching out

for triggers and then for responding appropriately if the triggers do in fact occur by

implementing the pre-approved and now established contingency plan. Often, the owner of

the risk is the project manager, but it is always in the best interest of the project for all team

members to watch for triggers while working on the project.

Rather than start this risk management process from scratch for every new project, it can

be followed once to establish a list of generic project risks and triggers, skipping step three.

Then, a team simply has to add project-specific project risks and triggers and assess the

probability, impact, and detectability for each risk, saving a great amount of time and

helping to ingrain a risk mentality into your project culture.

4.2A plan is developed to manage the top three items on the priority list of risks. (SO

4, AC 2)

Creating a Risk Register or Risk Matrix

Upon completion of the risk management process, a master document, known as a risk

register or risk matrix, is created. The most effective format for this document is a table,

because it will allow a great deal of information to be conveyed in a few pages. If the

information is instead presented in paragraph form, it may not be read by people and will be

rendered ineffective. The columns in the table can include risk description, probability,

impact, detectability, triggers, preventive actions, and contingency plan. Other columns,

such as quantitative value, can also be added as appropriate.

Important Things to Remember

Often, the steps in which triggers and preventive actions are identified are overlooked.

However, these are vital to the entire risk management process. After a team has

completed this exercise once, the members will be better conditioned on what to pay

attention to while managing the project so they are more proactive in catching changes or

issues early. If these steps in the risk management process are skipped, the team can find

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themselves in constant reaction mode, simply implementing a contingency plan for each

risk after that risk catches them by surprise. They could also ignore a seemingly

overwhelming list of project risks, which is why narrowing the list down to the most

important risks is critical for making sure the list is used.

Once the risk register is complete, it is easy to maintain. It can be reviewed during regular

status meetings, with as little as 15 minutes spent making sure the list is still current.

Determine if any project risks can be closed (but not removed completely), if any risks have

increased or decreased in value, and if there are any new project risks to add. This will

ensure that the list is continually seen as relevant and useful throughout the life of the

project.

Conclusion

A risk management process does not have to be complicated or time consuming to be

effective. By following a simple, tested, and proven approach that involves seven steps

taken at the beginning of each project (fewer if a generic list of project risks has already

been established), the project team can prepare itself for whatever may occur. Of course

there will always be changes and there may still be surprises, but the end result is that they

are fewer, that the team feels prepared and that the project is not taken off course.

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Role play

Activity: 10

Instructions What is the risk management process is applied to the top

three items on the priority list of risks in a specific

situation? (SO 4, AC 1)



CCFO

DEMONSTRATING

Marks 10

Notes:

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Project

GroupActivity: 11

Instructions What is a plan is developed to manage the top three items

on the priority list of risks? (SO 4, AC 2)

CCFO

COMMUNICATING



Notes:

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Research PROJECT

Activity: 12

Instructions What is a schedule is compiled for implementing and

reviewing the plan? (SO 4, AC 3)

CCFO Collecting



Notes:

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References

Prescribed Booklist

Learning unit Supplier

15008

Yellow Media Publishers

Senior learning material Developer:

Ms DuduzileZwane

www.yellowmedia.co.za

[email protected]

http://www.yellowmedia.co.za/

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SECTION C: SELF REFLECTION

I enjoyed/did not enjoy this module because:

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I enjoyed/did not enjoy this module because:

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I found group work ___________________________________!!!

The most interesting thing I learnt was:

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http://www.google.co.za/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=KyAZdx6IHHcxqM&tbnid=OAQUeiKZhmWJgM:&ved=0CAgQjRw&url=http://blogs.adobe.com/captivate/2012/01/what-i-learned-from-the-scenario-based-learning-book-by-dr-ray-jimenez.html&ei=FPUrU5XPKNSy7AaLmoDAAg&psig=AFQjCNEiKc2arHbYvTSfnH28cOIbFLv6Nw&ust=1395476116753780

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I feel I have gained the necessary skills and knowledge to:

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Please add the following to this module:

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Some comments from my classmates about my participation in class:

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Self-Assessment

Self-Assessment:

You have come to the end of this module – please take the time to review what you have learnt to date, and conduct a self-assessment against the learning outcomes of this module by following the instructions below:

Rate your understanding of each of the outcomes listed below: Keys: - no understanding - Some idea - Completely comfortable

NO OUTCOME

SELF RATING

1. Explain the concept of risk in the context of insurance.

2. Analyse and quantify risk exposure.

3. Investigate different ways of managing risk.

4. Develop a plan to manage risk in a specific situation.

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Learner Evaluation Form

Learning Programme Name

Facilitator Name

Learner name (Optional)

Dates of Facilitation

Employer / Work site

Date of Evaluation

Learner Tip:

Please complete the Evaluation Form as thoroughly as you are able to, in order for us to continuously improve our training quality! The purpose of the Evaluation Form is to evaluate the following:

logistics and support

facilitation

training material

assessment Your honest and detailed input is therefore of great value to us, and we appreciate your assistance in completing this evaluation form!

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A Logistics and Support Evaluation

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1 Was communication regarding attendance of the programme efficient and effective?

2 Was the Programme Coordinator helpful and efficient?

3 Was the training equipment and material used effective and prepared?

4 Was the training venue conducive to learning (set-up for convenience of learners, comfortable in terms of temperature, etc.)?

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B Facilitator Evaluation 1 The Facilitator was prepared and knowledgeable on the

subject of the programme

2 The Facilitator encouraged learner participation and input

3 The Facilitator made use of a variety of methods, exercises, activities and discussions

4 The Facilitator used the material in a structured and effective manner

5 The Facilitator was understandable, approachable and respectful of the learners

6 The Facilitator was punctual and kept to the schedule

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C Learning Programme Evaluation 1 The learning outcomes of the programme are

relevant and suitable.

2 The content of the programme was relevant and suitable for the target group.

3 The length of the facilitation was suitable for the programme.

4 The learning material assisted in learning new knowledge and skills to apply in a practical manner.

5 The Learning Material was free from spelling and grammar errors

6 Handouts and Exercises are clear, concise and relevant to the outcomes and content.

7 Learning material is generally of a high standard, and user friendly

Additional Comments on Learning Programme

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1 A clear overview provided of the assessment requirements of the programme was provided

2 The assessment process and time lines were clearly explained

3 All assessment activities and activities were discussed

Additional Comments on Assessment

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