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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
Profe
ssio
na
l Q
ua
lifica
tio
n: M
ana
ge
me
nt a
nd
A
dm
in
istratio
n
SA
QA
ID
: 60
65
2
NQ
F L
EV
EL
0
4
15008
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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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Learner guide Date of review: June 2015
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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FORMATIVE ASSESSMENT ...................................................................... 42
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
Research PROJECT ............................................................................................................ 44
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
FORMATIVE ASSESSMENT ...................................................................... 54
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
Research PROJECT ............................................................................................................ 56
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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Learner guide Date of review: June 2015
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
FORMATIVE ASSESSMENT ...................................................................... 64
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
Research PROJECT ............................................................................................................ 66
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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Learner guide Date of review: June 2015
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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Learner guide Date of review: June 2015
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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Learner guide Date of review: June 2015
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.
Pro
po
sed
Ro
ll Ou
t Stra
teg
y
Cre
dits
To
tal n
otio
na
l ho
urs
Th
eo
ry (6
0%
) Ho
urs
Pra
ctic
al’s
(30%
)Ho
urs
Gro
up
wo
rk/C
olla
bo
ratio
n
(10%
)Ho
urs
To
tal c
on
tact s
es
sio
ns
(40%
)
Ho
urs
Wo
rk in
teg
rate
d(1
0%
) learn
ing
H
ou
rs
Po
rtfolio
of e
vid
en
ce (6
5%
)
Ho
urs
Stu
dy
rese
arc
h (2
5%
) Ho
urs
To
tal P
rac
tical S
ess
ion
(65%
) H
ou
rs
As
se
ss
me
nt (5
%) H
ou
rs
15
00
8 D
ete
rmin
e ris
k e
xp
osu
re in
ord
er
to m
ana
ge th
e ris
k in
a s
pe
cific
situ
atio
n
2
20
8
14
18
12
18
7
15
7
19
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Learner guide Date of review: June 2015
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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Learner guide Date of review: June 2015
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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Learner guide Date of review: June 2015
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
course, you will be required
to assess your own
behaviour regarding work
experience.
Project research After you completed this
course, you will be required
to assess your own
behaviour regarding
reseach.
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Learner guide Date of review: June 2015
Instruction key
We will use the instruction key icons below. Pay attention to these icons.
Take note
Definition
Example
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Learner guide Date of review: June 2015
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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Learner guide Date of review: June 2015
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.
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Learner guide Date of review: June 2015
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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Learner guide Date of review: June 2015
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
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
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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Formative assessment
Role play
Activity: 04
Instructions What is possible exposures to risk are identified in a
specific situation? (SO 2, AC 1)
Method individual Activity
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
Notes:
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Summative assessment
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
Method Group Activity
Media Method Flipchart
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.
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Formative assessment
Role play
Activity: 07
Instructions What is different ways of avoiding risk are researched for
a specific situation? (SO 3, AC 1)
Method individual Activity
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
Notes:
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Summative assessment
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
Method Group Activity
Media Method Flipchart
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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Formative assessment
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)
Method individual Activity
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
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
Method Group Activity
Media Method Flipchart
Notes:
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References
Prescribed Booklist
Learning unit Supplier
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Yellow Media Publishers
Senior learning material Developer:
Ms DuduzileZwane
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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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.)?
Additional Comments on Logistics and Support
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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
Additional Comments on Facilitation
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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
D Assessment Evaluation
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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