Graduation Risk Analysis Report

7/28/2019 Graduation Risk Analysis Report

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ASK Consultants Aleksey Morozov

Sam Spaulding Kevin Puente

Guard Pro Athletics Risk AnalysisFriday, April 5, 2013


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TABLE OF CONTENTSI. Executive Summary ...3

II. Introduction ...5

III. Risk Identification/Valuation

Direct Property.....................6

Buildings ..................................................................................................................6

Improvements and Betterments ................................................................................9

Personal Property 9

Indirect Property11

Business Interruption .11

Contingent Business Interruption ..14

Building Ordinance 15

Leasehold Interest ..17

Liability......17

Premise and Operations 17

Products .29

Auto 32

Advertising .34

Employment Practices ...34

Professional ...41Contractual Liability ..42

Personal..................46

Workers Compensation ..46

Business Continuation ...48

Employee Benefits ..50

Crime..................50

IV. Risk Treatment

Retention54 Retention Capability ..54

Retention Options ...55

Insurance and Risk Financing....56

Property Insurance 58

Liability Insurance .63


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TABLE OF CONTENTS CONTINUED

Workers Compensation ..65

Loss Control...................67

Property 67

Crime 68

Fleet ..68

Personal ....69

V. Risk Administration

Policy Statement71

Program Organization72

VI. Appendix ....74

Risk Identification Workbook.Appendix A

Auto Premium Workbook....Appendix B

Business Income Workbook....Appendix C

Claims Analysis Workbook.....Appendix D

Leasehold Interest Workbook......Appendix E

Premium Analysis Workbook..Appendix F

Ratio Workbook..Appendix G

Sprinkler Analysis Workbook.Appendix HWorkers Compensation Premiums Workbook..Appendix I

Workers Compensation Injury Workbook....Appendix J

Workers Compensation Claims Workbook.Appendix K

Professional Employer Organization (PEO)....Appendix L

Flood Map and Information....Appendix M

Key Man Insurance Information.Appendix N

Anti-Counterfeiting Information..Appendix O

Functional Replacement Cost...Appendix POrdinance and Law Information..Appendix Q


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I. EXECUTIVE SUMMARY

After performing an extensive review of Guard Pro Athletics (GPA) company procedures, we have discovered numerous risks that need to be assessed and addressed with

proper treatments. Many of the risk that have been identified can be corrected promptly due tothe nature of the risk, while other that can cause a total shut down require more detail orientedtreatments. In this paper, we will discuss a structured risk management plan that will identify keyrisks as well as proper treatments that will reduce the actual cost of risk.

The bloodline for all manufacturing companies is the ability to distribute their manufactured goods to buyers; various supply chain risks have been identified within GPA. Thisincludes relying solely on one production plant for the construction of sellable goods, as well asonly having one raw material supplier. We urged on looking at other possible locations for

production and the supply of raw materials to prevent any unforeseen circumstances that wouldresult in a shut down of operations.

As a manufacturing company, GPA faces large exposures due to their production of goods, which can have costly effects associated with liability of their products. They will be thetargets of any liability case associated with products they manufacture. Thus it is important for GPA to consider how to properly prepare and protect against product liability lawsuits. With out

proper preparation, they will be left vulnerable should a product liability suit arise.

Another significant risk that needs to address immediately is the inadequate training procedures set by the company that is noncompliance with OSHA requirements. For GPA, notsatisfying OSHA requirements would result in a complete shut down if an inspection were toidentify the issue. Therefore, they should consider how they train their employees to satisfy the

OSHA conditions to prevent a total shut down of operations as well as to prevent injuries thatcan arise from improper training.

Multiple exposures have been uncovered in regards to GPAs Information TechnologyDepartment. Problems include the ease of hackers getting into the network system throughemployee login system and viewing sensitive information that is linked to profits as well ascriminal intent to destroy the network by individuals. By not having a secure network as well as

procedures how to handle instances that make the network vulnerable could result in losses thatGPA could not foresee. Therefore, by setting up a closed network and emplacing procedures thathandle the firing of employees log ins can result in secured plan to mitigate against these typesof losses.

There is a large risk exposure that GPA possesses by relying solely on ChemPro as their provider of raw materials. If anything were to happen to ChemPros facility, business at GPAwould be suspended until ChemPro is operational again. Therefore, it is important for GPA toconsider other businesses to supply them with raw materials. This can be achieved by setting upa emergency contract with another facility that would become GPAs provider of raw materialsshould ChemPros operations being shut down.


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Another issue that has been identified is the patent that GPA possesses will expire in thenext five years. This is an issue because our competitors could now use GPAs technology intheir product line due to them no longer having exclusivity to those products. We suggest thatGPA should improve their current line with new innovative materials thus making it a againunique and eligible for a new patent.

In conclusion, we believe by addressing these risks and the additional exposures that will be talked about in greater detail later in the paper GPA will be able to reduce their overall cost of risk and risk in general. With the operational information thats been provided for us, we havecreated a extensive report of suggestions that will bring value and uncover the needs of GPA.


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II. INTRODUCTION

At ASK Consultants, we have uncovered a variety of risks that GPA currently carrieswith them and have proposed adequate solutions for these issues. These risks differ in their frequency and severity and will have a wide range of solutions ranging from all the way fromloss control to avoidance. We have made recommendations on how each risk should be treated inorder to reduce GPAs overall cost of risk.

In Section IV, all identified risks are separated into different categories. Categoriesincluded are: direct property, indirect property, liability, personal, and crime. Here, we have

provided a brief description of the risk along with its coinciding treatment recommended in order to reduce the cost of risk. We will implement loss control, retention, transfer of risk, andavoidance of risk.

In the following section, a detailed view at some of the specific treatments is presented.These detailed treatments are provided in order to produce a better understanding for specifictreatments. Treatments will range from having retention analysis providing GPAs retentioncapability and options; Some treatments will entail insuring the risk and risk financing, becausetheir severity would be too much for the company to retain, and thus must have the risk transferred to an insurer; last but not least some treatments will require loss control by GPA, andthe solution is to be handled by GPA itself, and require the least financing in order to resolve theissue.

Ask insurance will also evaluate which risks pose potential problems for GPA along witha schedule of when and how they should be treated. Additionally we will include theapproximate cost of the coverage options we have suggested for the company to implement.

Lastly, a section on risk administration will be included to describe how to implement our suggested plans. Additionally appendixes will be provided in order to give GPA executives a

better understanding of our recommended treatments.

We hope that GPA will highly consider implementing the recommended treatments provided in our analysis of the company. Our top executives, Sam Spaulding, Kevin Puente, andAleksey Morozov have been working diligently for months in order to identify and treat the risksassociated with GPA. We believe our recommendations are the most effective and affordabletreatments methods necessary to protect GPA against unforeseen risks.


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III. RISK IDENTIFICATION/VALUATION

For a complete list of the risks and treatments that will be discussed, please refer toAppendix A to view the risk identification workbook. All of the risks were evaluated based onfrequency and severity with values ranging from one to five; one being the least frequent or severe to five being the most frequent and severe.

A. DIRECT PROPERTY

Buildings

Risk: Tacoma, WA. Site is 50 years old; subject to all perils

The Tacoma, WA site is 50 years old and is subject to perils. This is GPAs main

distribution facility and currently handles all of their shipping to other parts of their distributionchannel. The severity of this risk is a five because should GPA lose this building due to acatastrophic event their distribution channel would essentially be shutdown. Additionally, thefrequency of the risk is a one because the site can only be 50 years old once.

Treatment:

Recommended that GPA protect their building by adding the functional buildingvaluation coverage endorsement to their property insurance policy. Though this may be anexpensive policy to buy considering the age of the Tacoma site it is still a cheaper option thanhaving to purchase another property in the same area or rebuild a new facility today at the

current location. By adding the functional building valuation endorsement should any loss or damage occur to the insured property the insurance policy would step in and pay for the cost toreplace the building for the same use the cheapest cost. This will allow GPA to rebuild thecurrent facility in good standing with codes and in the same location should it be damaged or destroyed by a peril.

Risk: Miami, FL. Building 6 years old; subject to perils

The Miami, FL building is 6 years old and subject to perils. Miami is one of GPAsdistribution centers and with our recommendation potentially will double as a manufacturingsite. The severity of the risk is a five because should this building be destroyed GPA will lose itssouthern most distribution center and newly added manufacturing site. Additionally, thefrequency of this risk is a one because that Miami location can only be 6 years old once.

Treatment:

Recommended that GPA protect their building by adding the functional buildingvaluation coverage endorsement to their commercial property insurance policy. By adding thefunctional building valuation endorsement should any loss or damage occur to the insured


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property the insurance policy would step in and pay for the cost to replace the building usingmaterials that cost less but get the same job done. This will allow GPA to rebuild the currentfacility in good standing with codes and in the same location should it be damaged or destroyed

by a peril. Thus, allowing them to resume normal operations as soon as possible.

Risk: Seattle, WA factory section is 15 years old; subject to all perils

The Seattle, WA factory section is 15 years old and subject to perils. This is GPAs mainmanufacturing facility and currently produces 95 percent of their completed products. Due to the

buildings being 15 years old, there is concern that the infrastructure of the building is weak andthus is subject to a higher chance of loss. The frequency is only a one because the business canonly lose the property once per each occurrence. The possibility of a complete loss to the

building brings the severity to a five.

Treatment:




Risk: Seattle WA, building 30 years old; subject to perils

There are many risk associated with having a 30 year old building used as a primary

construction facility. As building age, they become less resistant to the harsh weather. The building has a frequency of a one because the loss can only occur once. The main concern for GPA would be facing a partial or complete loss on the building. Bringing the severity for it is afive.

Treatment:




Risk: Signs outside each facility, $8,000 each; subject to all perils

Signs outside of each of the five facilities are subject to perils. There is one sign at theentrance of each location. The signs are all outdoors so they are constantly exposed to harsh


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weather conditions. This puts the frequency at a five. The replacement cost for each sign is$8,000, which brings the severity up to a three.

Treatment:

Suggest Inland Marine Sign Coverage to be purchased in order to insure all signs for GPA. There is a total coverage of $40,000. This means each sign at each location is covered for its full cost of $8,000, due to a loss from covered perils.

Risk: Flood Coverage to all locations

Some of the locations that GPA has facilities have a high risk for floods. For example,due to the location of Florida, it is subject to hurricanes at a high rate. This brings the overallfrequency to a two. Some locations are severe flood zones, which mean there are high risks for floods from heavy rains, let alone the high risk of hurricanes for Florida. If a flood where tooccur the loss would be detrimental. There could be a loss to the entire structure of the buildings

and also the property inside of the premise the severity is a five.Treatment:

Suggest that GPA purchases Flood Coverage for all locations. By purchasing floodinsurance, the costs associated with floods are greatly reduced. GPA would not have to beconcerned with the severe losses that can occur to buildings and property due to flooding. AllGPA locations will have full coverage for their buildings and property.

Risk: San Mateo, CA outlet building; subject to all perils

The San Mateo, CA outlet building is a new GPA operation that is subject to perils. Thenew location will serve as an outlet store to sell outdated products at discounted rates. If the storewhere to suffer a loss, business venture would be lost along with the capital invested. Theseverity of the risk is a five, because should GPA lose this building due to a catastrophic eventtheir building would be shut down immediately. Additionally the frequency of the situation is aone because

Treatment:





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Improvements and Betterments

Risk: Tacoma, WA facility does not have sprinklers

Currently GPAs Tacoma facility does not have sprinklers which poses a risk should afire erupt. Sprinklers are the first defense when a fire occurs and having them can lessen thedamage done to the building and property inside. Therefore, by not having sprinklers installed itincreases the likelihood of losing the building and property inside of it should a fire happen.Additionally, the nearest fire station is located 8 miles from this location in a downtown areawhich may slow fire crews response times to a fire on-site. Overall, the frequency and severityof this risk is a 5 because sprinklers are not currently installed which could leave GPA with ahuge bill if a fire were to happen.

Treatment:

Advise GPA to install sprinklers at the Tacoma facility. By installing sprinklers this willreduce the overall insurance premium on the building because it can now withstand a fire for alonger period of time. In fact, according to the sprinkler system analysis it will save GPA nearly$37,000 annually in premiums and cost approximately $90,000 to install. Thus, after having thesprinkler system for three years it will have paid for itself in premium savings alone. Overall, byadding sprinklers to the Tacoma location it will increase the survivability of the building and itscontents while saving GPA money in the long run. For further details regarding thesecalculations please refer to Appendix H

Personal Property

Risk: Five company trucks/trailers; subject to all perils

Five company trucks/trailers are subject to perils for GPA. There is the risk of the car being vandalized and/or stolen, along with the risk for collision and liability. These vehicles aredriven on a regular basis, placing frequency at a five. These risks are severe and can have anextremely harsh consequence for the company. Not only is there a risk for actual property loss,

but also if there is a liability issue, it could result in a lawsuit. This places severity for thesituation at a five.

Treatment:

Recommend that GPA purchase Automobile insurance. This coverage will include bothliability and collision. By purchasing both liability and collision, this will allow the risk of loss,whether or not the vehicles are in use, to decrease by a substantial amount. The vehicle itself will

be fully covered along with any liability that is involved with the vehicle.


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Risk: Five company passenger vehicles; subject to all perils

Five company passenger vehicles are subject to perils for GPA. There is the risk of thecar being vandalized and/or stolen, along with the risk for collision and liability. These vehiclesare driven on a regular basis, placing frequency at a five. These risks are severe and can have an

extremely harsh consequence for the company. Not only is there a risk for actual property loss, but also if there is a liability issue, it could result in a lawsuit. This places severity for thesituation at a five.

Treatment:

Recommend that GPA purchase Automobile insurance. This coverage will include bothliability and collision. By purchasing both liability and collision, this will allow the risk of loss,whether or not the vehicles are in use, to decrease by a substantial amount. The vehicle itself will

be fully covered along with any liability that is involved with the vehicle.

Risk: Patent Expiring

Currently, GPA has sole ownership of the exclusive technology that is used to make their product. However, GPAs patent expires in five years, which could mean losing some of their market share due to other companies entering the market and trying to reproduce GPAs productat lower cost. According to Beverly Bird (2002), The expiration of a patent creates pricingcompetition as your invention begins popping up on store shelves everywhere. 1 This could drivethe demand for GPAs products down as well as its price because the consumer can now buy adifferent brand that offers the same benefits as GPAs product. Due to the patent not expiring for another five years the frequency is a one. The severity however is a five due to this patent beingthe only thing that is keeping out other competitors out of the market.

Treatment:

GPA could apply for a new patent by altering their current product with new innovativematerial in order to make it again unique and stand out from the competitors. Additionally,GPA will want to keep some part of the way their product is manufactured a secret. Whenapplying for patents you have to disclose the process of your creation, but by holding back smalldetails you can keep uniqueness to your product and differentiate it from new competitors thatcan now enter the market (this is called a trade secret).

Risk: Equipment could break down (Seattle, WA)

The equipment GPA relies on to make their custom products could potentially breakdown, thus the frequency is a two. This could be due to normal wear and tear, a part

1 Bird, B., & Demand Media. (2011). What Happens to a Patent When it Expires? Legalzoom .Retrieved February 26, 2013, from http://info.legalzoom.com/happens-patent-expires-20317.html


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malfunctioning, a power surge or even an employee error. In any case, the end result could meantemporary or complete shutdown of the production facility, thus the severity is a five. CurrentlyGPA relies solely on this equipment each day to produce enough products to serve their clientele.Their current plan is to have common replacement parts stockpiled in the Seattle facility in casethe machine malfunctions. This is a good idea and may solve some problems but these

replacement parts cannot be relied upon. If anything were to happen with their equipment intheir current state, chances are high a complete shutdown of production would occur until themachine is up and running.

Treatment:

Urge GPA to purchase Equipment Breakdown Insurance. By GPA having EquipmentBreakdown Coverage they are virtually protecting against anything that can go wrong with their equipment in their own facility. According to Mark MacGougan (2013), You should think of equipment breakdown coverage as being like accident, health and disability insurance for your equipment. 2 The reason GPA should think like this is because accidents can happen, and leave

your equipment out of work due to injury. However, by purchasing Equipment BreakdownInsurance this will cover GPA should a piece of equipment not function properly due to a power surge, mechanical breakdown or other issues in house. This will allow GPA to continue businessand/or resume their normal business operations as quickly as possible should a machinemalfunction for a variety of reasons.

B. INDIRECT PROPERTY

Business Interruption

Risk: Unreliable shipping from India

In the past two years the manager of the Tacoma facility has repeatedly complained aboutunreliable shipping from the international supplier in India. Due to this occurring on more thanone occasion the frequency is a four. On several occasions the Tacoma facility has receiveddamaged goods due to poor packaging and even short counts on the shipped products. Thisresulted in GPA having to hire an express jet on one occasion to insure timely delivery of their

product to a professional team in New York. If GPA had not chartered the jet to insure timelydelivery, it could have meant losing a professional team as a GPA client. Due to product loss,reputation loss and having to make arrangements on the fly the severity of this risk is a four.

Treatment:

Recommended terminating the contract with India. India is currently responsible for onlyfive percent of GPAs manufacturing which is an amount that can be easily transferredelsewhere. In fact, we recommended that GPA build a manufacturing facility in Miami and if

2 Ennico, C. (2003, May 19). Why You Need Equipment Breakdown Insurance. Entrepreneur .Retrieved March 11, 2013, from http://www.entrepreneur.com/article/62068


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they did, the five percent of the manufacturing could be done here and under GPAs rules andregulations. The reliability of GPA would increase dramatically; as they would now not have toworry about receiving short counts and damaged products. Additionally, should their be a delayin the manufacturing process GPA would be the first to know and be able to make better arrangements to insure timely delivery rather than having to make a costly last minute decision

like chartering a jet due to someone elses mistake.

Risk: Virus got into company computer system suspending company email and inventory

The server in San Francisco was shut down for nearly two days when a virus entered thecomputer system, which took out GPA company email, and their inventory management system.This is a clear problem because in todays day and age companies rely heavily on e-mail for communicating with clients and co-workers. Additionally, a shutdown of the inventorymanagement system is a big problem. GPA would be unable to keep track of where inventory isand how much they have at each location. Due to the virus suspending the email and inventorymanagement systems the severity if a four. Furthermore, the frequency is a one because so far

GPA has only had one virus infiltrate their system.Treatment:

Recommend that GPA enact a company internet usage policy This policy will spell outfor the employee what type of Internet use is allowed and not allowed at work. In addition it willalso tell them the consequences of not following directions such as suspension or getting fired.According to Employers (2013), Make sure the policy is in writing and placed clearly in theemployee handbook. 3 This way all new employees will know immediately coming in the rulesand regulations when it comes to Internet use on company computers. It was determined thevirus entered the computer system due to an employee downloading a corrupt file. Having this

policy in force can prevent actions like this. Employees will understand that the penalty for visiting unauthorized websites and downloading programs that are unrelated to work are harshand could cost them their job.

Risk: Possible government quarantine of GPA Seattle, WA. facility due to a chemicaldisbursement in the vicinity

There is a chemical plant less than a mile away from the Seattle, WA manufacturing plant. If there is some type of mistake at that chemical plant, the environment around it may become hazardous. There is the risk that GPAs manufacturing plant would be required totemporarily close down. The frequency is a one, because this is depending on a separatecompany from GPA having a meltdown at their plant. This manufacturing facility is responsiblefor ninety-five percent of GPAs manufacturing, which would put the severity at a five.

3 Employers Can Restrict Employee Web Surfing. (2013). Lawyers . Retrieved February 26,2012, from http://labor-employment-law.lawyers.com/human-resources-law/Employers-Can-Restrict-Employee-Web-Surfing.html


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Treatment:

It is recommended that GPA expand the Miami, FL location to also include amanufacturing plant. If they were to be able to manufacture the same amount as the Seattle

facility, if something where to open, GPA would be able to close down their Seattle, WA facilityfor a few days without a major negative effect. This also brings added benefits to the company,such as the opportunity to substantially increase the current supply they have managed to output.

Risk: GPA computer data backed up every other week

Currently GPA backs up its computer data every other week. This is a problem for GPA because if their system crashes midweek before the backup is performed they have now lost allinformation input that week. For example, a tax organization found that backing up data wastedious and time consuming, so they decided to backup their data once a month. Unfortunately,their system crashed in the middle of tax season and when they went to recover their backup

information they discovered it was old information before the current tax season; meaning theylost all the information on who has paid their taxes that particular year (Backing Up, 2012). 4 If GPA does not take proper precautions they too could lose sensitive information that their

business relies on such as shipment information, sales, and inventory counts. In addition, if GPAdoes lose their computer data, getting all the proper information back will be time consumingand is generally expensive. Overall, the frequency of this risk is a four because GPA needs tochange their current backup routine. Also, the severity of the risk is a four because if GPA losesinformation from the prior week they may not be able to successfully fulfill their obligations totheir clients.

Treatment:

Recommended that GPA change how often they backup their data. According toBacking Up Information (2012), It is important to develop a regular backup routine that reflectsthe frequency of change in data. If the computer is used daily, it is best practice to back upimportant files daily. 5 GPA uses their computer systems everyday; therefore, it is important to

back up their data everyday. Overall, performing backups daily it will allow GPA to greatlyreduce their risk of losing valuable information overnight or midweek due to an IT systemmalfunction.

4 Cyber Security: Guides for Backing Up Information. (2012). Dhses . Retrieved March 23, 2013,from http://www.dhses.ny.gov/ocs/local-government/documents/Backing-Up-Information-Guide-2012.pdf 5 Cyber Security: Guides for Backing Up Information. (2012). Dhses . Retrieved March 23, 2013,from http://www.dhses.ny.gov/ocs/local-government/documents/Backing-Up-Information-Guide-2012.pdf


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Risk: GPA computer data backed up onto one consolidated file.

Presently GPA backs up its computer data onto one consolidated file, however, that can

be an issue if for whatever reason there is a problem during the recovery process. Quite often a backup file may not have backed up properly or can be corrupt when attempting to open it. If that were the case GPA would be out of luck and out of their data. Overall, the frequency of thisrisk is a four because GPA is currently backing up their data on one file. Additionally, theseverity is a five because if GPA were to find that single file damaged and corrupt they wouldlose all of their important information.

Treatment:

Suggest that GPA change their current IT department procedures to include performingmultiple backups of their data. According to Backing Up Information (2012), Best practices

require that organizations keep multiple versions of backups to increase the chance of retrievingdamaged or destroyed information. 6 For GPA it is vital to have multiple versions of their data just incase the file is damaged or not properly backed up. Having multiple files will allow GPAto reduce the chance of losing the data important to their business operations.

Contingent Business Interruption

Risk: ChemPro is sole provider of critical components

Currently GPA relies on ChemPro as their source of critical component parts for their products. Due to ChemPro working with the company day to day the frequency is a five. Thereare many benefits for choosing a single provider such as reliability and building a goodrelationship; however, there are also some negatives. The main issue with ChemPro being thesole provider is that GPA relies heavily on them for all their product needs. If for whatever reason a disaster was to happen and in turn ChemPro is unable to produce goods then GPAs

business would suffer. Thus, the severity for this risk is a five. Additionally, according toObinna Heche (2013), You will also have lesser negotiating leverage if you become dependenton a single supplier who supplies your needs. 7 The reason behind this is due to the supplier knowing that you are reliant on them, and therefore they can negotiate terms tailored directed atwhat they want without much of a fight from the buyer.

6 Cyber Security: Guides for Backing Up Information. (2012). Dhses . Retrieved March 23, 2013,from http://www.dhses.ny.gov/ocs/local-government/documents/Backing-Up-Information-Guide-2012.pdf 7 Heche, O. (2013). Advantages Of Having A Single Supplier. Articlerich . Retrieved February28, 2013, from http://www.articlerich.com/Article/Advantages-Of-Having-A-Single-Supplier/227599


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Treatment:

Suggest that GPA keep ChemPro as their sole providers but negotiate a new contract withanother entity should ChemPro fail. This will allow the second entity to step in so GPA can

maintain their full level of production. The reason you want to keep ChemPro is because havinga single supplier also has its advantages. For example, by having one supplier GPA is able to build a relationship with this supplier and potentially work together for future product design.Also, by only dealing with one supplier, administrative and shipping costs are less on thecompany. Rather than having to track and pay multiple companies and shipments, GPA only hasto deal with one. Most important, however, may be the fact that GPA can be assured the qualityof product is consistent with the last batch they received. According to Obinna Heche (2013),this makes the quality assurance of your company easier to conduct and you can expect to havelessor production difficulties and even less customer complaints. 8Due to GPA being amanufacturer of sports safety equipment and gear, having less customer complaints is a hugedeal. By sticking with one supplier GPA will be able to build a healthy business relationship for

future product needs and assure quality products are sold to its customers.

Building Ordinance

Risk: Tacoma, WA Site some buildings not up to code

Currently, the Tacoma, WA Site is fifty years old and many of the buildings on the siteare not up to code. When buildings are not up to code generally insurance premiums are higher

because of the greater risk associated with insuring an out of date building (weaker infrastructure). The better the site or buildings are rated the cheaper the premiums will be. Dueto some buildings at the Tacoma facility presently not being up to code the frequency is a one.Additionally, the severity of the issue is a four since some buildings are not up to code they are ata higher risk for damage or total loss.

Treatment:

It is recommended that GPA purchase an Ordinance or Law Coverage endorsement ontop of their current Business and Personal Property policy. With this coverage form attached the

policy will now step into place should any building structure suffer 40 percent damage from acovered caused of loss. At this point GPA will now be eligible to receive funds for theundamaged portion of the building, demolition costs, and the increased cost of construction whenrebuilding the facility up to current codes. This endorsement will thus allow GPA to resumeoperations as quickly as possible should a loss occur because a new building will now be builtwithout the problem of having to pay large out of pocket funds to ensure it built up to code.

8 Safety in the Workplace. (n.d.). Referenceforbusiness . Retrieved March 11, 2013, fromhttp://www.referenceforbusiness.com/management/Pr-Sa/Safety-in-the-Workplace.html


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Risk: Seattle, WA Building not up to code

The facility in Seattle, WA is 30 years old which can create a severe loss due to its ageand its construction. If the Seattle facility receives damage to 40 percent or more to the building,

GPA is required by the law to completely tear down the facility and build the entire building tocode, but being that this can only happen once, the frequency is a one. When a building has to berebuilt to current building codes, it can add 50 percent or more costs to a company 9, bringingseverity to a five. This is an issue for GPA because most insurance contracts have exclusions toadditional costs that are a result from ordinance or law.

Treatment:

Recommended that GPA purchase Ordinance of Law Coverage endorsement on top of their current Business and Personal Property policy. With this coverage form attached the policywill now step into place should any building structure suffer 40 percent damage from a covered

caused of loss. At this point GPA will now be eligible to receive funds for the undamaged portion of the building, demolition costs, and the increased cost of construction when rebuildingthe facility up to current codes. This endorsement will thus allow GPA to resume operations asquickly as possible should a loss occur because a new building will now be built without the

problem of having to pay large out of pocket funds to ensure it built up to code.

Risk: Government Quarantine of GPAs Seattle, WA facility due to chemicalcontamination in vicinity

There is a chemical plant located only 800 yards away, which brings risk of them havinggovernment quarantine for a chemical contamination. Due to the close vicinity of the Seattle

manufacturing plant and the chemical plant, there is a possibility that during a governmentquarantine, GPAs manufacturing facility could be encompassed in the area of quarantine. The possibility of this is reliant on a contamination issue of some sort occurring at the nearbychemical plant. The frequency of this occurring is relatively low, a one. This one manufacturing

plant is currently responsible for 95 percent of total production, which would place the severityat five.

Treatment :

Suggest that the Miami, FL location will be expanded and now not only consist of itsown distribution but also its own manufacturing plant. This will eliminate the risk of a full stopin all production should the Seattle, WA location face a business interruption. The Miami, FLfacility will now be able to continue full operations should something occur. Once the Miami, FLfacility completes its expansion, both manufacturing plants can be responsible for roughly fifty

9 Dudey, P. O., & Malecki, D. S. (2008). Ordinance or Law Coverage: Code for Recoverty. Adjusting Today . Retrieved March 22, 2013, fromhttp://www.adjustersinternational.com/ATpdf/3009_OrdinanceorLawCoverage_2008.pdf


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percent of production unless one facility freezes production, which in that case the opposite plantwill increase its productions in order to handle the failure of the other facility.

Leasehold Interest

Risk: Contractual liability for leasehold agreement outlet store in San Mateo, CA

In order to conduct sales of out dated equipment, GPA has signed a lease for the outletstore in San Mateo, CA for the next eight years. Though the leasing company is in charge of the

parking lot, landscaping, and sidewalk improvements, GPA is responsible for any improvements,inventory, and the rent of the building. Due to us only having agreed to a single contract thefrequency is placed at a one. If a peril occurs within the facility, GPA is responsible to insure itsown interest within the building. Right now GPA does not have any plan to insure this exposureand is taking on a big risk in order to cover the losses out of pocket, which places the severity ata five.

Treatment:

Propose that GPA purchase a Leasehold Interest Coverage Form for the San Mateo, CA building. One of the large risks that GPA faces is, if a covered peril were to occur, the differencein rent for the next eight years. For GPA this is estimated to be $192,000 alone. With theLeasehold Interest Form, GPA can insure their building that way they would be covered if a lossto the building were to occur. This policy also includes coverage for damage or destruction of any improvements and betterments that are added to the building.

C. Liability

Premises and Operations

Risk: Steve Bells health.

Steve Bells health has been declining rapidly since the passing of his wife 2 years ago.There have been several accounts of Steve collapsing at work and waking up without knowinghow he collapsed or what he did that day. This is a problem for GPA because Steve has 15

percent ownership in the company and is their Chief Science Officer. Losing Steve could meanlosing their knowledge base for future product-development and his ownership share in thecompany. The severity of this happening is a 5 because Steve was one of the initial four members of the group who designed this new GPA product and he is a much-needed asset to theteam and the future of GPA. Due to the fact Steve has had multiple incidents with regards to hishealth, the frequency of Steves health is a 3.

Treatment:

Recommend purchasing Key Man Insurance and having someone shadow Steve Bell.Key Man Insurance is simply a life insurance policy on someone who is key to your business.


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The company pays the Key Man insurance premiums and the beneficiary is the company.Essentially, should Steve Bell unfortunately die the Key Man Insurance policy will payoff the

beneficiary (GPA). This money could be used to hire a replacement, or if necessary pay off debts, distribute money to investors, pay severance to employees and shut down the business if absolutely necessary. 10 The other recommendation of having someone shadow Steve Bell is also

important. The reason for this recommendation is should Steve Bell unfortunately die, GPAwould already have someone mentoring under Steve Bell and learning what he does day to dayfor the business. This person could potentially replace Steve Bell or work alongside a new hireto complete the same job until normal operations could be resumed. For additional informationrelated to Key Man Insurance please refer to Appendix N.

Risk: Liabilities relating to the loading dock

In most businesses, loading docks are a prime location for employee injury due to thehigh level of foot traffic. Injuries from loading docks account for 25 percent of all injuries inmanufacturing and warehouse operations 11. It is important for companies to identify potential

hazards in the loading dock area and create strategies to minimize them. If an employee or aninvitee is injured in the loading dock area, GPA becomes liable for the medical treatments inorder to rehabilitate the injured party. Over the past few years, there have been numerous claimsalready filed that were related to injury from the loading dock area which classifies this risk as athree. Even though most employers carry Workers Compensation and General Liabilitycoverage, there is still the possibility that the injured may seek for additional compensationthrough third party suits. During these situations the victims may choose to file a third partyclaim to seek compensation for medical bills, pain, suffering, and more. This makes the severityfor this risk is a three because due to the extra costs arising from the need to defend in court.

Treatment:

Recommend that GPA enact stringent safety regulation in order to minimize theoccurrence of such accidents. One of the initial safety procedures that should be implemented isto install safety barriers and clearly outline the edges of the dock in order to prevent accidentalinjury resulting of a slip and fall. There have also been documented cases of workers filing suitfor injuries that occur from unloading products of delivery trucks as well as fatalities fromvehicles falling off the edge. The primary cause of these injuries is the lack in employee trainingof safety procedures. For example, employees should be instructed to be caution of shiftinggoods while unloading incoming vehicles as well as be cautions of their surroundings.

Risk: Injury resulting from equipment misuse

In the past three years, nearly half of the claims have been a result from the misuse of

10 Lowe, K. (2002, October 7). Why You Need Key Man Insurance. Entrepreneur . RetrievedApril 10, 2013, from http://www.entrepreneur.com/article/56068 11 Stone, S. (2012, March 3). How to Avoid Loading Dock Injuries. Warehousing Insights

Material Handling Systems RSS . Retrieved March 10, 2013, from http://www.cisco-eagle.com/blog/2012/08/03/how-to-avoid-loading-dock-injuries/


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equipment. According to Occupational Safety and Health Administration (OSHA),approximately 100 employees are fatally injured, and approximately 95,000 employees areinjured every year while operating trucks as well as forklifts 12. These types of incidents make upthe majority of the workers compensation claims, which puts the frequency of the situation at afive. This is costing GPA an enormous amount of money in terms of paying the claims and

having employees missing work in order to recover from injury, placing severity at a three.Treatment:

Recommend GPA to focus more on loss prevention and reduction rather than focusing primarily on insurance. The training and education of employees is ideal because it instructsthem on how to properly use the machinery. Constant training in a form of a refresher course for employees should be mandatory in order to be up to date on safe machinery practices. Thetraining should include topics such as how to operate the machinery as well as how to maintainit. Another way that can increase safety within GPA is by having safety checklists to help avoidhazards that can cause injuries, illness and fatalities. This can include things such as wearing

proper protection for each task, making sure that employees follow proper steps when usingforklifts, and ways of disposing of hazardous materials.

Risk: Not having a Human Resource department

Not having a Human Resource department at GPA means they do not have mangers andemployees who specifically work on improving the interaction between employees and thecompany. This can be a good thing or bad thing depending on the company. In either case, sinceGPA currently does not have a Human Resource department the frequency of the risk is a five.According to Chris Miksen from Demand Media (2013), If you're managing numerous people,such as over 50, it may be difficult to employ a strategy to deal with each employee. If employees become frustrated with the company or their jobs become dissatisfying, productioncan drop and company revenue may plunge. 13 For GPA they are a midsized company withnearly 130 employees (potentially adding more with expansion). Therefore, by not having aHuman Resource department they could not be communicating effectively enough with their employees to develop a healthy employer-employee relationship. Due to GPA potentially nothaving a good communication stream with their employees the severity of this risk is a three.

Treatment:

Decide whether or not an HR department is worth the cost for GPA. GPA has a fewthings to consider when it comes to establishing a HR department for their company. First isdoes GPA even believe they need a HR department. This will have to be determined by themanagers and CEOs of GPA. If they determine that the current system works and GPAemployees are successfully communicating with GPA then there is nothing to change. However,

12 Miksin, C. (2013). Advantages & Disadvantages of Not Having Human Resources. Chron .Retrieved March 16, 2013, from http://smallbusiness.chron.com/advantages-disadvantages-not-having-human-resources-18696.html 13 Miksen, Chris. (2013). Advantages & Disadvantages of Not Having Human Resources. Chron .Available: Cited March 16, 2013.


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if it is determined that GPA employees are not communicating as effectively as the managersand CEOs expected then adding an HR department will surely benefit them. Next, if it isdetermined that GPA needs to add an HR department they need to figure out how to finance it or if they can even afford to. According to Chris Miksen (2013), Money spent on humanresources management and costs associated with human resources, such as employee programs

and services, can amount to over $1,000 per employee.14

Clearly, a $1000 per employee is notexactly cheap (especially when GPA has 130 employees). On top of the cost per employee thereis the cost to manage and monitor the HR department. These options and considerations willhave to be weighed by GPAs CEOs to determine whether or not they need and can afford toimplement an HR department. Additionally, GPA could choose to outsource their HR department to a Preferred Employer Organization (PEO). PEOs are specialized in handlingmanagement of human resources, employee benefits, payroll and workers compensation. 15 Thisincludes keeping current with employment laws and regulations which are always changing andcould bring up potential legal issues. Thus, a PEO will allow GPA to focus on its corecompetencies so they can maintain and grow their business because they are taking care of everything a in-house HR department would without the stress of managing it yourself. To see

more on what a PEO can offer you at GPA please see Appendix L.Risk: Possible pollution from manufacturing plant.

As a manufacturing plant, possible pollution exposures are present from the raw materialsthat are used in the construction of GPA products. A majority of businesses have plans in placethat dictate exactly how harmful pollutants will be removed once used. GPA currently has no

plan in place therefore they are possibly contaminating their own manufacturing plant(s). Inaddition, there is also speculation that the land that the factory has been built on was alreadycontaminated; however, this has not yet been proven. Overall, the frequency of this risk is a two

because no pollution disposal plan is in place. The severity of this risk is a four due to GPA

possibly having to spend time and money cleaning up their potential pollution exposure.Treatment:

Urge GPA to integrate loss control(s) within the production cycle. A successful pollution prevention program focuses on reducing and eliminating pollution at the source. This can bedone by changes in the materials used, processes, practices, and/or products. GPA could identifywhich of the materials used in the production process has the highest chance of environmentaldamage. The most successful pollution prevention programs are implemented into a firms overallrisk management strategy from day one. Creating processes that are able to reuse some of the

products or byproducts can reduce pollution during the construction process. One way of preventing pollution is to reduce the dragout during the process. Dragout is the amount of

14 Miksen, Chris. (2013). Advantages & Disadvantages of Not Having Human Resources. Chron .Available: http://smallbusiness.chron.com/advantages-disadvantages-not-having-human-resources-18696.html Cited March 16, 2013.15 What is a PEO? (2013). Napeo . Available: http://www.napeo.org/peoindustry/ Cited March,26, 2013.


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water that is dumped out of the factory during rinsing of the product. This can be done byslowing the rate of the withdraw racks in order to allow more chemicals to drip back into the

process tank. Additionally, it is recommend that GPA install drain boards to minimize spillage between tanks. Installing more efficient machinery can reduce the amount of chemicals that GPAuses. By installing flow controls for the rinse process, GPA will only save money in water costs

but also allow fewer chemicals to be released out of the system. Finally, if loss controls where tofail and there is spillage that causes pollution, it is recommended that GPA purchase a pollutioninsurance form in order to help pay for the restoration.

Risk: Chemical distribution plant 800 yards from Seattle location poses possiblecontamination risk

Having a chemical distribution plant near GPAs manufacturing facility can result in alarge pollution exposure that the company may be blamed for. GPA has stated that there is a

possibility that there are already chemicals in the ground, but the first phase of the environmentaltest has not shown anything. If any accident occurs on their premise such as a fire, it could result

in the business and the surrounding area to be shut down due to government intervention andquarantining, including GPAs manufacturing plant. For GPA the frequency of this risk is a onedue to it not happening yet but if it were to happen, the severity of it would be a five since their

peril could result in a total shutdown of our operation.

Treatment:

Advise GPA to purchase an insurance policy in order to protect against pollutionexposure. There is a possibility that the contamination around our premise is a result of thechemical distribution plants negligence to how it handles its inventory. GPA should consider

beginning the next level environmental test to see exactly what possible chemicals are in the

ground, and then see if there is a possibility of linking the contamination to the chemicaldistribution plant. This would allow for expenses for the clean up be placed on the chemicaldistribution instead of GPA.

Risk: Risk of worker lawsuit coming back on GPA (Technician jacket incident)

As a technician was inspecting a running machine, his jacket was caught on the pulleysystem in the machine. He was then pulled in and the machine broke his back, paralyzing himfrom the waist down. He was attempting to file a lawsuit on the manufacturer of the machine,however, they are denying all responsibility and claim GPA did not properly maintain themachine. The frequency is a two because this is not this is not reoccurring often. The severity of the risk is a four. It is a major lawsuit because he is no paralyzed and can no longer continue hiseveryday routine due to his injuries. It will also be very difficult to find a job that can be fully

performed without the mobility of his legs. If the lawsuit comes back to GPA for not properlymaintaining the machinery, they will face a substantial financial loss.


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Treatment:

Suggest that GPA provide proof that the machinery was properly maintained while in possession of GPA. Find documents of the prior times of machine maintenance with detailedreports on the findings of the inspections. Find out what regular maintenance or how often

inspection is required by the actual manufacturer of the machine. Explain how those protocols provided by the manufacturer of the machine were followed, and that GPA is not liable for theinjury or any type of negligence when it came to the machine.

Risk: Old buildings increase chance of asbestos or mold.

Due to some of the buildings being out of date there is the risk of asbestos in the buildings which is known to cause lung cancer and other serious illnesses. The severity for thisrisk is a four being that it can result in injury or death. The older buildings have a risk of containing material with asbestos due to the fact that it was widely used for its overall strength

prior to the discovery of its negative health effects. Older premises that contain asbestos in their

building material present a constant risk of inhaling of the asbestos molecules by all employeesworking in that facility, bringing the frequency to a four.

Treatment :

Advise that GPA examine old facilities in order to inquire if there is in fact asbestos or mold present in the building. GPA needs to take the necessary actions in order to prevent futureinjuries from occurring depending on the result of testing. Any material deemed to be harmfulshould be replaced immediately in order to prevent sicknesses and/or death of employees.

Risk: GPA has no Risk Management department

GPA does not have a department dedicated to risk management. This can cause severe problems in the future. It is important to have a risk management department in order for them tomanage and assess the risk that comes with new projects in the future. It would also benefit inhaving a risk management department so that the recommendations we have made in our risk audit, can be closely monitored and have the new performance assessed and if need be modified.There could be more risk with every project that is accepted by GPA that the project will not besuccessful as a risk manager has not ran the numbers to ensure a positive NPV associated withthe project.

Treatment:

Urge GPA to Contract a third party Risk Management Company. The Risk ManagementCompany would evaluate any current and future projects GPA plans to implement in order tomake sure they are making good project decisions. Having a risk management departmentincreases the rate of success for the company by a substantial amount because they have theability to accurately measure the risk associated with any project or company regulations. Risk Management is a proactive process and will therefore reduce the risk from futureinconveniences.


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Risk: Ergonomic issues for GPA workers

Workers on production lines often stand for hours at a time. Sometimes even inuncomfortable positions due to machinery and table height, size, etc. In addition to standing for

long periods of time workers are often subject to repeating the same motion over and over.According to Assembly, work-related repetitive motions are a common source of seriousdisorders, such as tendonitis or bursitis. 16 In addition, heavy lifting is an evident problem atGPAs facilities, employees have been known to lift work related materials manually rather thanuse the lifts to save time. This resulted in injuries, which is something the employee andemployer do not want. Due to GPA not having a fully ergonomic system for their production lineemployees each day they show up to work the frequency is a four. The severity is also a four inthis case; workers have already sustained injuries due to these problems and cost the companytime and money.

Treatment:

Install robotic arms in all manufacturing plants and require the use of weight belts.According the GPA, they believe installing the robotic lift in the Seattle location has resulted insaving them two lifting injuries in just the first year. Thus, by installing them in all facilities itshould in turn reduce the number of lifting injuries that occur at each facility. Another thing tothink about is machine and workbench height and size. Depending on each workers body type(being short or tall, thin or robust) they may not be comfortable at their current workstation.Fortunately, GPA can choose to invest in adjustable workbenches and reconsider the employeesworkstation layout (where tools are located, height, distance, etc.). This will allow employees tocome in and adjust their workstation to a proper height for them, which allows the employee tohave proper form when working on the production line. By installing adjustable workbenches

and reorganizing the employees workspace the employer is able to reduce injury and increaseemployee moral thus, increasing their productivity. Lastly, GPA should consider hiring anergonomic consultant if they deem it necessary to review all of GPAs facilities in full.

Risk: Possible Environmental Contamination in Seattle, WA facility

Environmental groups have speculated about the belief of possible contamination at thefacility. No evidence has been presented supporting this idea and phase one of contaminationtesting was completed with no trace of chemical or metal contamination, putting frequency at atwo. Environmental contamination can lead to the shutdown of the entire facility and/or law suitsagainst the company if they are to blame. The severity, if this were to occur, would be dramaticand results in a five for severity. The facility being shutdown would be a very severe loss due tothe fact that they are in charge of 95 percent of full productions. If the production capabilities of

16 Redcross, E. (2011, May 20). Workstations: Is Your Assembly Line Ergonomic? Assembly .Retrieved February 26, 2013, from http://www.assemblymag.com/articles/89033-workstations-is-your-assembly-line-ergonomic


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this facility where to shutdown, GPA would not be able to produce enough products to maintaintheir sales.

Treatment:

A detailed multi-phase contamination test will be completed on the premises. Oncecompleted it can be dealt with from there, either all doubts will be eliminated, or the companywill have to take the next step in treating the contamination in order to have their facility up andrunning again without any indication of contamination to the environment.

Risk: Safety of Employees on Manufacturing Floor

Safety is always an issue for manufacturing companies. Floor employees are workingwith or near big machines and it is important that each employee does his/her job safely.According to the case information many of GPAs long tenured employees have forgotten safetymeasures. This poses an additional issue for GPA because it is known many of their employees

are not practicing safe work habits. These unsafe practices each day can increase the number of work related injuries; therefore, the frequency is a four. Additionally, the severity is a three because of the potential workers compensation claims associated with floor employees not practicing safe work habits.

Treatment:

Recommend that GPA begin conducting safety audits and offer incentives to employeesfor practicing safe work habits. According to Safety in the Workplace (2013), Becauseemployees who "know better" often continue to engage in accident-causing behavior, manyemployers have redirected their focus from accident prevention to the prevention of unsafe acts

that could lead to an accident (p.1). If GPA starts conducting safety audits this will allow themto pinpoint employees who think they know better and are not properly performing their job.Once GPA has identified these employees through the use of safety audits they can then decidehow to get the employees to properly perform their job. Secondly, GPA should offer anincentive program for their employees. As stated before many of GPAs employees who aretrained often forget proper safety techniques. However, according to Safety in the Workplace(2013) One way to mitigate this problem is to implement a safety incentive program. Such

programs aim to motivate safe behavior by providing workers with incentives for avoidingaccidents. (p.1). By implementing an incentive program GPA employees will have a reason tomake a conscious effort to perform their job correctly. If GPA has a certain number of workdayswithout an accident each GPA employee will receive a reward such as a gas card or even cash

bonus. These rewards will surely motivate GPA employees to get the job done safely which willreduce the workers compensation costs for GPA as a whole. The only concern with offeringincentives is making them to great or too small, GPA needs to pick a incentive that drivesemployees to strive for safety but not enough to keep them from reporting injuries that occur onthe job.


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Risk: Risk of technician getting injured while inspecting the machines (running)

The technicians have the exposure to injury when they are inspecting machines whilethey are running. The technician has to be close to the moving parts in order to inspect themachine, and while it is running there is a massive risk of injury. The machines are not inspected

often which places the frequency of the risk at a one. If a loss where to be suffered the severitywould be a four because the loss could be anything such as minor injury, amputation of a limb,or even death. This liability can greatly affect both the financial strength of the company and alsoits reputation.

Treatment:

Advise GPA to enact safety protocols for the technicians inspecting the machinery. Theyare to be trained in the proper techniques to inspect the machines that will minimize the risk of injury. These safety techniques training will have to be completed on a semi-annual basis toinsure that the technicians follow the proper safety protocol. Put safety guards in place for the

running machinery that acts as a barrier to not let foreign objects into its moving parts, but that istransparent, and allows the technician to accurately assess the machinery.

Risk: Risk of third party sales people demonstrating equipment on GPA property

Sales demonstrations have been presented on GPAs premises, and in doing so, thisincreases the risk of injury. There has been a case where a sales person was demonstrating aforklift to GPA, and in doing so, as he was moving a pallet, he backed up into the manufacturingline and injured two employees. Sales demonstrations are not done often therefore placing thefrequency at a two. Injuries can occur due to negligence during a sales demonstration, whichwould result in possible law suits besides workers comp claims. The severity is a three.

Treatment :

Urge GPA to make employees aware of any changes on the typical workday. If any salesdemonstrations are to be done, all workers must aware of when and where they will be on

performed. Sales demonstrations are to be done in a designated area with minimal workersaround. By notifying all employees of when and where demonstrations will be performed theywill be more aware of their surroundings thus reducing the overall risk associated thesalespersons product demonstration.

Risk: Miami manager potentially taking good employees after he is fired.

The Miami manager is well known by his colleagues at the Miami location and hasthreatened to take all the good employees with him if he is let go. This poses a clear risk to GPA

because they could potentially lose some of their best employees in Miami. This can only happenonce the Miami manager is actually fired; therefore, the frequency is a one. Additionally, theseverity is a two because GPA could potentially a few top employees.


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Treatment:

Recommend that GPA conduct a meeting with its Miami employees and let them knowof the potential changes being made at their facility. The employees will be enlightened on futurechanges being made such as firing the Miami manager, making Miami a manufacturing facility,

and bringing in the manager from India to oversee the facility. By informing the current Miamiemployees of the changes soon to be made it may entice them to stay regardless of what theMiami manager says. Hopefully it will be clear to most of the employees that GPA is planningto grow with or without the Miami manager and should they stay and work they also will have achance to grow.

Risk: New Outlet Store is a test pilot in San Mateo, CA

GPA is currently opening a new Outlet store in San Mateo, CA, this will be their firstOutlet Store. There is the risk that the storefront is not a success, which places the frequency at afour. With this Outlet store GPA will have the capability of selling their outdated products along

with any excess supply of the up-to-date products. The outdated products are to be offered atdiscounted prices rather than having sunk costs with products that are inferior. The severity of the situation is a three.

Treatment :

Urge there to be supervision of the performance of this location. The San Mateo, CAoutlet stores efficiency and sales are to be closely monitored to ensure adequate performance.There will also have to be loss control provisions set in place to reduce the cost of loss.Marketing the new store front will also be required in order to make the consumers aware of boththe new store location and also the opportunity of purchasing discounted products from the

previous years while still offering current products in the same location.Risk: Employees bypassing safety guards

According to the information given on GPA many of their employees are bypassingsafety guards in order to complete their daily tasks quicker. This poses an immediate problem for GPA because the chance of injury while on the job is greatly increased. When employees areinjured it then becomes a liability for GPA, which can cost them a lot of time and money. Due tothe fact GPA can suffer some monetary damages the severity is a three. Additionally thefrequency is a four because it is known GPA employees are currently bypassing machine safetyguards to get their work done faster.

Treatment:

Suggest that GPA hold quarterly safety meetings to stress the importance of the safetyguards on machines and go over proper techniques when operating machinery. Most peoplewould think installing safety guards on each machine would solve the problem and reduceGPAs overall risk, unfortunately, that is not the case. According to Dont Bypass (2013), Nomatter how well designed your guards might be, they are totally useless if your workers try to


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bypass them. 17 When workers are determined to get the job done faster, safety guards will notstop them. It is very easy for an employee to tamper with the safety guard on any given machinein order to make the process quicker. Therefore the only way to combat the problem is toemphasize to your employees that bypassing guards and tampering with machinery is just toorisky (Dont Bypass, 2013). 18 By holding meetings every three months GPA will hopefully be

able to alter the majority of its employees attitudes towards safety guards and educate them on proper machine operating techniques. If GPA can successfully educate its employees theyshould see less and less issues arising from the bypassing safety guards.

Risk: Risk of outsourcing and manufacturing in other countries.

There is a risk for outsourcing because the regulations for that country may not coincidewith the regulation in the United States; this can be anything from how employees are treated tothe types of materials used in the products themselves. It is also difficult to instill a qualitycontrol in another country; this prevents the consistency of high quality products/material,

placing the frequency at a five. There is also the lack of supervision that is typically employed in

GPAs facilities. Shipment containers are arriving with both damaged and missing products. Fullorders are not always being received, therefore making the severity a three.

Treatment:

Urge that GPA minimize outsourcing risk by examining and negotiating currentcontractual provisions. Negotiate a secondary contract with another company in a differentcountry in case the first contract falls through, or if the primary company is unable to fulfillGPAs needs. Recommended to close down the manufacturing plant in India and expand theMiami, FL location to also consist of a manufacturing plant. This will result in correct standards,quality control, and overall supervision for the company.

Risk: Employees downloading software at work

GPA employees are currently able to download whatever they wish while at work and onwork computers. This poses a problem to GPA because what employees download cannegatively affect GPAs Information Technology (IT) system(s). For example, as stated inanother risk a GPA employee downloaded a bad file and caused GPAs computer system toshutdown for nearly two days; suspending company email capabilities and their inventorymanagement system. This alone caused problems for GPA and it took GPAs time and money toget the system back up and running. In addition when downloading bad files some may hogcompany bandwidth (slowing overall internet speed), cause security threats (such as the virusexample above), and leave GPA looking at a copyright infringement lawsuit (Norton Dana,

17 Don't Bypass Machine Saftey. (2013). Okhighered . Retrieved March 15, 2013, fromhttp://www.okhighered.org/ssherc/newsletters/osrhe/machine-safety.html 18 Don't Bypass Machine Saftey. (2013). Okhighered Retrieved March 15, 2013, fromhttp://www.okhighered.org/ssherc/newsletters/osrhe/machine-safety.html


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2002). 19 Overall the frequency of this risk is a five because employees are currently allowed touse the interest however they see fit. Additionally, the severity is a three because it can costGPA time and money.

Treatment:

Recommended that GPA enact a company Internet use policy. This policy will spell outfor the employees exactly what is permitted and not permitted while on company computers. Asstated in a previous risk GPA should have their internet use policy in the employee handbook sothat new hires immediately know the rules and have no excuse not to follow them. Theconsequences for not complying with GPAs Internet use policy need to be clearly spelled outand strictly enforced so employees will take it seriously. Such penalties for not following the

policy can be suspension or firing depending on the situation. In addition, it is a good idea to putin the policy GPA has the right to monitor company computer system in full, including visitedwebsites, chat rooms, news groups and emails (Norton Dana, 2002). 20 By putting this in theInternet use policy GPA employees will know that at any given time GPA can retrace their

computer usage, which in turn will deter employees from downloading inappropriate software.Risk: Cost to do business with China may become cost ineffective for raw materials.

In the recent years the Chinese economy has been growing to the point that some analystare considering that it will surpass the American production economy. For GPA the frequency of this risk is a three because the prices of labor have been increasing constantly over the past fewyears. For GPA, this is an issue because at that point it may be ineffective to have our rawmaterial come from China, when GPA could contract a different country and have the goods at acheaper rate, which places the severity at a four. In China, costs of labor are rising in many areas.Labor costs in China have been rising about 15 percent a year according to the China-Briefing 21.

Treatment:

Suggest GPA switch to a new supplier. After a certain amount of increase in the price of the raw materials, it may not be economically feasible for GPA to purchase. India, Indonesia,Vietnam, and Thailand are now becoming attractive alternatives for manufacturing companies to

19 Norton, D. (2002, April 10). Update Your Internet Use Policy To Stop Download Abuse.TechRepublic . Retrieved March 23, 2013, from http://www.techrepublic.com/article/update-your-internet-use-policy-to-stop-download-abuse/1039353 20 Norton, D. (2002, April 10). Update Your Internet Use Policy To Stop Download Abuse.TechRepublic . Retrieved March 23, 2013, from http://www.techrepublic.com/article/update-your-internet-use-policy-to-stop-download-abuse/1039353

21 Yenamandra, T. (2011, April 19). Magazine and Daily News Service. China Briefing News .Retrieved February 26, 2013, from http://www.china-briefing.com/news/2011/04/19/the-china-alternative-india.html


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buy raw materials from. Thailand, for example, grew in manufacturing by 63 percent in 2012according to Wall Street Journal. 22

Products

Risk: Counterfeit products in Haiti

Currently GPA is involved in a subsidizing program in which they provide their sportsgear at or near cost to less privileged countries, particularly Haiti. One GPA salesmen hasreported seeing numbers counterfeit products in some areas since doing business here. Due tothis fact, the frequency is a two. Clearly, having counterfeit products from your company out inthe world can pose some legal issues. For example, if anyone happens to be using counterfeitGPA protective gear and then suffers an injury, that person looks to sue GPA not the counterfeitdealer. GPAs name is on the product and therefore the customer deems them responsible for theimproper protection or poor quality of the good regardless if they actually manufactured the

product or not. According to Anti-Counterfeiting (2013), It won't matter that the buyer is later made aware that they used a counterfeit product. You'll take the blame, and suffer the damagesfrom the ensuing media frenzy. 23 Counterfeit products do not alter the counterfeiters reputationis alters the actual companies reputation (your label, your problem). Due to this fact the severityof counterfeit products being produced in less fortunate countries is a four.

Treatment:

Recommend that GPA stop distributing their products to the less privileged countries.Although this does increase GPAs market share and does in fact help those who are in need, therisk of product liability claims falling back onto GPAs shoulders is to great. In fact, Thirdworld countries continue to provide cheap, unregulated laborers to counterfeit items of substandard quality (Anti-Counterfeit, 2013, p. 1). 24 So if GPA plans to continue providing

protective sports gear and apparel to less privileged countries they can always expect counterfeitsto be readily made wherever they do business. For additional information on Anti-Counterfeiting

please see Appendix O.

Risk: Risk associated with hazardous materials coming from China

In the past there has been multiple cases reported of hazardous material used by China inthe production of goods for companies in the states. The use of hazardous materials can result ina severe law suits against GPA. There have been instances in the past of China using lead paintin the manufacturing of childrens toys, which resulted in severe sicknesses for children and

22 Zhang, Y. (2013, January 16). China Begins to Lose Edge as World's Factory Floor. The Wall Street Journal . Retrieved February 26, 2013, fromhttp://online.wsj.com/article/SB10001424127887323783704578245241751969774.html 23 Anti-Counterfeiting Programs. (2013). Kessler . Retrieved February 28, 2013, fromhttp://www.investigation.com/anti_counterfeiting.htm 24 Anti-Counterfeiting Programs. (2013). Kessler . Retrieved February 28, 2013, fromhttp://www.investigation.com/anti_counterfeiting.htm


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lawsuits for the company who is responsible for the toy. This was done because some materialsare cheaper and/or easily accessible compared to other materials which may be expensive our difficult to acquire. This is not a current issue so the frequency of this is a two. Being that this isnot an issue that is currently occurring, but rather a risk that will always be present due to the factthat GPA is not the ones performing quality control on the materials before they are used. Due to

the severe lawsuits that GPA could face, the severity of this would be placed at a four.

Treatment:

Suggest that GPA instill a quality control inspection of all materials that will be used for production prior to their use in the manufacturing plant. This will be done in order to prevent useof hazardous materials in the manufacturing facilities. Also perhaps consider switching thesupplier of these materials to a different country which does not have a history of this problem.An example of a different country to use would be Singapore, which does not have a history of the use of hazardous material without the knowledge of the company purchasing their products.

Risk: Injuries resulting from Repetitive Motion Tasks

Machine operators and assembly line workers often perform the same movements day inand day out. These motions can result in serious injuries over time and are known as repetitivemotion disorders (RMDs). According to Assembly (2013), RMDs and other musculoskeletaldisorders are among the most prevalent lost-time injuries and illnesses in almost every industry.Theyre also the most costly. 25 If an employee develops an RMD that requires surgery GPAcan expect to pay even more. GPAs workers compensation claims will increase with each RMD.Therefore, they will have also an increase their insurance premiums costing them extra money.Additionally, the employee will more than likely miss multiple days at work when burdened witha RMD. This leaves GPA without a worker and now the need to find a replacement. Due to

RMDs being costly and time consuming the severity is a four. Additionally the frequency is afive because GPA employees are performing these movements everyday.

Treatment:

Recommend that GPA begin holding training sessions quarterly to ensure the employeesknow proper ergonomic techniques and establish an incentive program. As stated previously anincentive program is a great way to motivate employees and get them focused on safety. Eachday without an accident means one day closer to receiving an incentive bonus. For employeesthis may mean a gas card or a cash bonus. Additionally, by holding training sessions every threemonths it will keep employees memory fresh with proper ergonomic techniques. These sessionswill cover proper lifting and opening techniques in order to avoid bad repetitive motions, whichincrease the chance of employees developing RMDs. The better an employees form whileworking equates to less strain put on their muscles and body. Overall, by implementing

25 Redcross, E. (2011, May 20). Workstations: Is Your Assembly Line Ergonomic? Assembly .Retrieved February 26, 2013, from http://www.assemblymag.com/articles/89033-workstations-is-your-assembly-line-ergonomic


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quarterly training sessions and offering an incentive program it will keeps employees focused onsafety and proper form, which will hopefully save GPA money in the long run.

Risk: Product Liability

GPA is a manufacturing company, which produces sports protective gear and apparel.This protective gear and apparel may seem harmless but a company can never predict when their product may fail or foresee how each consumer will use their product. In fact, according to theRJ Ahmann Company (2013), Any business that manufactures or distributes a product to beused by the public faces potential manufacturing liability lawsuits. 26 (p.1). Due to the fact anymanufacturing company can be the target of product liability lawsuits the frequency of thesituation is a two. In addition to the manufacturers being the target of legal lawsuits, theselawsuits can also cost a lot of money. A given companys legal fees can be substantial whether the courts verdict is innocent or guilty (RJ Ahmann, 2013). 27 For this reason, it is important thatGPA properly protects and prepares for potential product liability suits. Overall, the severity of the risk is a five because being ill prepared to combat product liability suits could leave a

company out of revenue and therefore out of business.Treatment:

Recommend that GPA consider their potential product liability exposure and have a planin place to protect their assets from a possible product liability lawsuit. First and foremost GPAshould hire some legal help to determine whether or not their current warnings and labels aresufficient for use. By law all manufacturers have a duty to warn. 28 It is very important todetermine whether or not the warnings and labels are adequate because should a liability issuearise the person filing suit against GPA will likely try to claim that GPA did not properly warnthem of the issue. Next, GPA should consider implementing some preventive techniques such as

assessing the potential risks of their finished products before it is sent out for sale. Proper risk assessment of their finished products can highlight some of the potential issues GPA mayencounter once the product is in the consumers hands. 29 Thus, this testing will allow GPA tomitigate the risk of consumers misusing their product because it can identify potential flaws inthe product design or material that could lead to improper customer use before they get their

26 RJ Ahmann Company. (2013). Insurance For Manufacturing And Product LIABILITY. RJA.Retrieved March 23, 2013, from http://www.rja.com/expertise/coverage/manufacturers-product-liability 27 RJ Ahmann Company. (2013). Insurance For Manufacturing And Product LIABILITY. RJA.Retrieved March 23, 2013, from http://www.rja.com/expertise/coverage/manufacturers-product-liability28 Ross, K. (2011). Warnings and Instructions: Updated U.S. Standards and GlobalRequirements. Product Liability Prevention . Retrieved April 3, 2013, fromhttp://www.productliabilityprevention.com/images/DRI_Fall_2011_Strictly_Speaking_Warnings.pdf 29 Ross, K. (2009, Spring). Foreseeability: A Critical Analysis in Minimizing Pre-sale and Post-sale Liability. Product Liability Prevention . Retrieved April 3, 2013, fromhttp://www.productliabilityprevention.com/images/DRI_Foreseeable_Spring_2009_KRoss_.pdf


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hands on it. If GPA can prove they did everything possible to reasonably foresee all product useand misuse before releasing the product they will have a strong defensive case in court. Last butnot least, GPA should be aware of what to do should their products cause harm or damage toconsumers. If a lawsuit is filed against GPA due to their product causing damage, the CGL

policy we have recommended will step into place. The CGL policy will cover all legal fees

associated with the lawsuit against GPA whether they are at fault or not. As mentioned earlier this is a great benefit because legal fees can be costly regardless of if the final decision in court isinnocent or guilty. It is also important to note that should a problem arise GPA needs to handle itas quickly as possible. The sooner GPA can remedy the customers problem, the lesscomplicated the claim will be. By reacting quickly to product liability issues it will create a goodreputation for GPA rather than a negative one. We believe between the CGL policy coverage andimplementing our recommended loss control techniques GPA will greatly reduce their overall

product liability exposure

Documents

Graduation Risk Analysis Report