Risk Management : Practice Questions

Which risk management strategy involves a business deciding not to engage in a high-risk project at all to ensure no loss occurs?

A business faces a risk of fire damage to its warehouse. It decides to install an automatic sprinkler system. Which risk management strategy is being applied?

A firm faces a risk where there is only a possibility of loss or no loss, but no possibility of gain. The firm decides to set aside a contingency fund to cover these potential losses instead of buying insurance. Which type of risk and risk management strategy are being applied?

A logistics company decides to install high-quality security cameras and fire alarms in its warehouse to minimize the frequency and severity of potential losses from theft or fire. Which risk management strategy is the company applying?

A factory owner is considering how to manage the risk of professional negligence or errors made by employees that might cause financial loss to clients. If the owner decides to take out fidelity insurance, which specific risk is being addressed?

What is the primary purpose of Public Liability Insurance for a business?

Briefly explain the defining characteristic of a pure risk and a speculative risk, and state one type of insurance that typically covers pure risks.

An innovative tech startup is developing a groundbreaking AI product with high market potential but also significant technological and competitive uncertainties. Evaluate how risk assumption and risk reduction strategies could be critically applied to manage the core risks associated with this product's development and market entry.

A local bookstore, 'Page Turner', is considering a complete renovation of its premises to enhance the customer experience and improve operational efficiency. The owner is concerned about the potential risks associated with such a large-scale project.

(a) Identify two pure, insurable risks that Page Turner might face during the renovation project.

(b) For each risk identified in part (a), suggest a suitable risk management strategy from the following options: risk avoidance, risk reduction, risk assumption, or risk transfer. Briefly explain how Page Turner would implement this strategy for each risk.

Global Logistics Ltd. is a freight forwarding company operating internationally, handling diverse goods from perishable foods to hazardous materials. The company is seeking to improve its risk management framework.

(a) Identify and classify two different types of risks Global Logistics Ltd. might face, categorising each as either insurable or non-insurable and pure or speculative. For each identified risk, briefly explain its potential impact on the company.

(b) For each of the two risks identified in part (a), suggest a specific and appropriate risk management strategy (from risk avoidance, risk reduction, risk assumption, or risk transfer) and explain how it would be implemented by Global Logistics Ltd.

(c) Explain the importance of fidelity insurance and employees' compensation insurance for Global Logistics Ltd., providing one specific example for each type of insurance.