PART A- 1) Explain the likeyly similarities and differences between EACG stage of the risk management cycle for a) A small business ( such as a one man window cleaning operation) And b) A large international corpororation ( such as a multinational oil company) 2) Most people would agree that “fewer losses is better than more losses”. Nevertheless, it is useful to have access to large data sets of past losses for improved estimates of key variables as an aid towards improved risk management decisions Explain how access to large data sets relevant to past losses can be useful towards a) Loss control decisions and b) Loss financing decisions. 3) Insurance is generally accepted as a useful risk management tool for dealing with ‘high severity, low likelihood’ losses. However, it can be expensive. Explain how risk management techniques OTHER THAN INSURANCE can be useful towards managing risks in a cost effective manner during periods when insurance is expensive. 4) a) Provide TWO examples of PURE risks for which commercial insurance cover is usually available and explain WHY is it usually available. b)Provide TWO examples of PURE risks for which commercial insurance is NOT usually available and explain WHY is it not usually available. c) Provide TWO examples of PURE risks for which commercial insurance cover is ‘available sometimes but not at other times’ and explain how the availability (or not) of commercial insurance is influenced by “the underwriting cycle”. PART B- 1. Compare and contrast the key variables and estimation processes involved in applying the net present value (NPV) appraisal technique to a) a typical business project , b) a loss control project and c) risk financing arrangements for PURE risks. d) risk control projects 2) 1. For a disaster of your choice (major or minor) relate actual events and arrangements to EACH stage of the risk management cycle and offer your thoughts on 1. what was right and what was wrong and ii) how risk management arrangements could be improved to reduce the frequency and/or severity of losses from similar, future disasters. b) Explain AND evaluate the arrangements for dealing with EACH stage of the risk management cycle for an organisation (or part of an organisation) of your choice. 1. For an organisation (or part of an organisation) of your choice, 1. distinguish between the main i) business and ii) pure loss exposures. 1. For the pure loss exposures ONLY, classify the key risks into ‘small’, ‘significant’ and ‘catastrophic’ according to suitable criteria. 1. With reference to your answer to part b) of this question, explain suitable risk control and/or financing arrangements for each of the loss exposures 1. Vegfreezy is a firm which stores frozen vegetables (collected from local farms) in a large refrigerated warehouse until they are required in the frozen food counters of supermarkets. The firm has been suffering routine losses of fro.

1. PART A-
1) Explain the likeyly similarities and differences between
EACG stage of the risk management cycle for
a) A small business ( such as a one man window cleaning
operation)
And
b) A large international corpororation ( such as a multinational
oil company)
2) Most people would agree that “fewer losses is better than
more losses”. Nevertheless, it is useful to have access to large
data sets of past losses for improved estimates of key variables
as an aid towards improved risk management decisions
Explain how access to large data sets relevant to past losses can
be useful towards
a) Loss control decisions and
b) Loss financing decisions.
3) Insurance is generally accepted as a useful risk management
tool for dealing with ‘high severity, low likelihood’ losses.
However, it can be expensive.
Explain how risk management techniques OTHER THAN
INSURANCE can be useful towards managing risks in a cost
effective manner during periods when insurance is expensive.
4) a) Provide TWO examples of PURE risks for which
commercial insurance cover is usually available and explain
WHY is it usually available.

2. b)Provide TWO examples of PURE risks for which commercial
insurance is NOT usually available and explain WHY is it not
usually available.
c) Provide TWO examples of PURE risks for which commercial
insurance cover is ‘available sometimes but not at other times’
and explain how the availability (or not) of commercial
insurance is influenced by “the underwriting cycle”.
PART B-
1. Compare and contrast the key variables and estimation
processes involved in applying the net present value (NPV)
appraisal technique to a) a typical business project , b) a loss
control project and c) risk financing arrangements for PURE
risks. d) risk control projects
2)
1. For a disaster of your choice (major or minor) relate actual
events and arrangements to EACH stage of the risk management
cycle and offer your thoughts on

3. 1. what was right and what was wrong and
ii) how risk management arrangements could be improved to
reduce the frequency and/or severity of losses from similar,
future disasters.
b) Explain AND evaluate the arrangements for dealing with
EACH stage of the risk management cycle for an organisation
(or part of an organisation) of your choice.
1. For an organisation (or part of an organisation) of your
choice,
1. distinguish between the main i) business and ii) pure loss
exposures.
1. For the pure loss exposures ONLY, classify the key risks
into ‘small’, ‘significant’ and ‘catastrophic’ according to
suitable criteria.
1. With reference to your answer to part b) of this question,
explain suitable risk control and/or financing arrangements for
each of the loss exposures
1. Vegfreezy is a firm which stores frozen vegetables (collected
from local farms) in a large refrigerated warehouse until they
are required in the frozen food counters of supermarkets. The
firm has been suffering routine losses of frozen vegetables due
to handling accidents amounting to £180,000 per year.

4. Management at Vegfreezy are also aware that, if the
refrigeration unit at the warehouse failed, all the stock of frozen
vegetables would be ruined at an estimated cost of £1.8 million
(the maximum probable loss (MPL)). The current annual
insurance premium for covering the risks to the frozen
vegetables is £375,000. This amount is considered to be too
expensive so management at Vegfreezy are considering an
alternative method for financing the risk via a self-insurance
fund. The size of the fund would be equal to the MPL, would
cost £50,000 to administer and would earn a risk-free return of
8%. From its operations, Vegfreezy usually earns a 17.1% rate
of return.
REQUIRED: (making any necessary assumptions)
1. Use ‘Houston’s Equations’ to calculate i) the opportunity
cost of insurance and ii) the opportunity cost of self-insurance
(15 marks) for Vegfreezy.
AND
1. Explain the limitations of using Houston’s Equations as a
basis for deciding whether to insure or self-insure the loss
exposure and explain other information which may be relevant
to the situation and how it might influence the decision.
5) ‘Insurance is the best risk management device for some
loss exposures, satisfactory for others, but for some it is either
inappropriate or unavailable’. Discuss this statement in relation
to
a) NON-insurance techniques for dealing with risks faced by
organisations

5. and
b) characteristics of risks which influence the willingness of
the insurance industry to offer insurance products.
6) Sealand Ltd. is valued at £18 millions and currently earns
a 15% return on capital. Losses from pure risks at Cruncher are
usually around £180,000. For the forthcoming year Sealand’s
insurers have quoted an insurance premium of £700,000 to
cover all losses.
REQUIRED: (making any necessary assumptions)
1. Calculate Sealand’s opportunity cost of insurance
1. Calculate the opportunity cost if management at Sealand set
up a £2,400,000 fund to cover potential losses. The fund would
be invested at a risk free 5% rate of interest and cost £300,000
to administer.
1. On the basis of the information and your calculations so far
for this question, offer your opinions on whether the managers
at Sealand should choose the full insurance (as in a)) or the
fund (as in b)
1. Explain what information OTHER than that provided is
relevant to the situation and how it might influence the decision
to insure or self-insure
1. Suggest and explain details of alternative ways that Sealand’s
pure loss exposure could be handled that might be more sensible
than either full insurance or full self-insurance

6. 7)
a) With reference to characteristics of risks which influence
the willingness of the insurance industry to offer insurance
products, explain WHY insurance is unavailable for some kinds
of risks.
AND
1. Explain alternative risk management strategies for dealing
with risks which are uninsurable.
(25 marks)
8) For an organisation (or part of an organisation) of your
choice
a) explain the PURE risks under the headings of
i) Asset risks
ii) Personnel risks
iii) Liability risks
iv) Consequential loss risks.
AND
b) Rank the risks described in part a) of this question in terms
of severity (low, medium and high) and likelihood (low,
medium and high).
AND
c) With reference to your answers to parts a) and b) of this
question, explain the appropriate risk management techniques
for dealing with the risks.
9) Frank, Sid and Sue are managers of Posh Shops Ltd. and
they need to decide how to finance their property losses

7. (estimated on average at around $5 millions per year) for the
year 2011.
Total value of property owned by Posh Shops is $300 millions.
Frank suggests that the best loss financing method would be to
insure the whole property loss exposure at an insurance
premium of $6 millions.
Sid, however, is unwilling to pay the $1 million over the
expected value of losses to an insurance company and suggests
setting up a self-insurance fund instead. The size of the fund
would be 15% of the value of property assets at risk and it
would earn a risk-free 7% return.
A third alternative, suggested by Sue, would be to purchase an
insurance with a deductible/excess of $1 million which would
cost $3.5 millions. Losses below the deductible/excess are
estimated at $2 millions but, to allow for variations around this
expected value, Sue suggests that the size of the fund set aside
to cover the self-insured part of the loss exposure should be $10
millions. Similar to Sid’s suggestion, the fund would earn a 7%
risk-free return.
At the end of 2010, Posh Shops will be worth $1,000 millions
and anticipates a 15% rate of return in 2011.
REQUIRED (making any necessary assumptions and showing
all workings):
a) Calculate the expected net worth of Posh Shops at the end
of 2011
i) if Frank’s suggestion is implemented
ii) if Sid’s suggestion is implemented and Posh Shops is lucky
enough to suffer zero losses

8. iii) if Sid’s suggestion is implemented and actual losses are as
anticipated
iv) if Sue’s suggestion is implemented and losses are as
anticipated .
b) Offer, on the basis of your calculations so far for this
question, your views on whether Frank, Sid or Sue has the best
suggestion for financing the property loss exposures
c) List and explain any other factors which are not mentioned
in this question but which might be relevant to the decision and
how they might influence it
10) a) Provide details of THREE examples of PURE risks
for which the insurance
industry will not provide insurance cover.
AND
b) Explain WHY the insurance industry is not willing to offer
cover for EACH of the three risks
AND
1. Suggest alternative ways for corporations to manage EACH
of the risks that you have described in part a) of this question
11)
a) i) For an organisation (or part of an organisation) of
your choice, provide and explain examples of PURE losses

9. which should be categorised as
i) minor
ii) significant and
iii) catastrophic.
ii) Suggest appropriate risk management tools and techniques
which could be usefully applied to each type of loss described
in part a) of this question
AND
b) Explain, with reference to EACH stage of the risk
management cycle as applied to ONE of the following;
A chain of hotels
A commercial bank
A manufacturer of toys
A firm of auditors
A hospital
A supermarket
1. the key risk management decisions
AND
ii) the costs and benefits that need to be estimated when
making those decisions
12) Explain and evaluate the contribution of probabilistic
and/or statistical estimation procedures towards making THREE
different risk management decisions

10. 13) Management at Execotel needs to decide how to finance
next year’s property loss exposures. They have been quoted an
all-risks insurance premium of £3.36 millions to cover the
potential losses which are usually around £2.7 millions per
annum. Execotel is currently valued at £27 millions and is
expected to earn a 15% return on capital in the forthcoming
year.
REQUIRED (making any necessary assumptions)
1. Calculate the opportunity cost of insurance.
1. Calculate the opportunity cost of self-insurance by
maintaining a £3.6 million contingency fund which would cost
£450,000 per annum to administrate and which could be
invested to earn a risk-free 5% return on capital
1. From your calculations in parts a) and b) of this question,
identify whether commercial insurance or self-insurance is the
cheapest option after taking opportunity costs into account.
1. Provide details of further information which could be
relevant to the decision and how it might cause management at
Execotel to choose a different option to the one you have
identified in part c) of this question.
14) a) Explain WHY insurance cover for the following
types of loss exposure IS or IS NOT likely to be available from
commercial insurers;
1. a strike (withdrawal of labour)
1. a speeding fine
1. losses due to computer fraud in a commercial bank
1. losses caused by terrorist attack
1. death of a pet dog through natural causes.
AND
b) Offer suggestions for risk management solutions OTHER
than commercial insurance for the loss exposures you have

11. identified in part a) of this question as uninsurable.
Scheduling
For an organization, the following project schedule is given.
Assume that all times are in days.
Task
Predecessor
Normal Time
Crash Time
Crash Cost Slope
A
None
7
7
NA
B
A
3
3
NA
C
A
8
4
600
D
A
4
4
NA
E
B
6
5
600

12. F
C, D
2
2
NA
G
E, F
6
6
NA
H
F
5
3
400
I
G, H
4
4
NA
J
I
2
2
NA
In a 3- to 4-page Microsoft Word document, address the
following:
· Draw the AON project network using Microsoft Project,
Microsoft Visio, or some other tool capable of creating such a
network. Perform a critical path analysis for the network and
calculate the ES, EF, LS, and LF times.
· Calculate the slack time for each activity.
· Identify the critical path.
· Assume that the organization will receive a $400 bonus for
each day the duration of the project is shortened. The
organization is also responsible for paying the crash cost

13. associated with shortening the schedule. To maximize the net
profit, identify which task you should crash and by how much.
Support your responses with examples.
Cite any sources in APA format.
Submission Details
Name your document
SU_MGT3059_W2_A2_LastName_FirstInitial.doc.
Submit your document to the W2 Assignment 2 Dropbox by
Tuesday, January 13, 2015.
Assignment 2 Grading Criteria
Maximum Points
Created the AON project network.
10
Performed a critical path analysis for the network and
calculated the ES, EF, LS, and LF times.
10
Identified the critical path through the network.
5
Calculated the slack time for each activity.
10
Identified the task you should crash to maximize the profit.
5
Identified the number of days by which you should crash this
task in order to maximize your net profit.
5
Used correct spelling, grammar, and professional vocabulary.
Cited all sources using APA format.
5
Total:
50