Transcript Document

ARM 55 Review Session
April 27, 2014 · Denver, CO
Susan Kearney, CPCU, ARM, AAI, AU
[email protected] · (610) 644-2100 x 7226
Recording of this session via any media type is strictly prohibited.
Page 1
Session Overview
• Exam Basics – What to Expect
• Test Taking Tips
• Review of the “Top” Most Challenging
Educational Objectives of ARM 55
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Page 2
Exam Basics – What to Expect
•Exam Length, Exam
Format
•Educational Objectives
•Balanced Exam
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Page 3
Test Taking Tips
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Don’t get bogged down early
Try the exam in “waves”
Get the easy ones
Eliminate the obviously wrong answers
Use the mark for later review feature
Use your scratch paper to keep track
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Page 4
ERM Framework and Process Model
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Page 5
Risk Assessment and Treatment
Segment A
Segment B
● Intro to Risk
Assessment &
Treatment
● Intellectual Property
● Root Cause Analysis
● Business Continuity
● Physical Property
Risk
Segment C
● Environmental Risk
& Reputation Risk
● Crime & Cyber Risk
● Legal & Regulatory
Risk
● Fleet Risk
● Management
Liability
● Human Resource
Risk
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Page 6
Assignment 1: Intro to Risk Assessment
and Treatment
• Overview of Risk Assessment
• Categories of Risk Identification and Analysis
Techniques
• Risk Treatment
• Traditional Accident Analysis Techniques
• System Safety Analysis
• Loss Control Techniques for Hazard Risk
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Page 7
Challenging Assignment 1
EO 1.04 and EO 1.05
• Describe the following accident analysis techniques:
o Sequence of events (Domino theory)
o Energy transfer theory
o Techniques of operations review (TOR) approach
o Change analysis
o Job-safety analysis
• Describe system safety, its primary purpose, and its
advantages.
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Page 8
Accident Causation
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Page 9
Accident Analysis Techniques
Technique
Application
Control
Sequence of events
(Domino theory – H.W.
Heinrich)
Presumes that accidents are the end result of a
chain of accident factors (5 factors, pg. 1.18)
Correcting unsafe acts
Energy transfer theory
(Dr. William Haddon)
Views accidents as energy that is released and that
affects objects, including living things, in amounts
or at rates that objects cannot tolerate—accidents
are caused by energy out of control (10 strategies,
pg. 1.19)
Controlling released energy
and/or reducing harm caused by
that energy
Technique of Operations
review (TOR) approach
(D.A. Weaver)
Views the causes of accidents to be a result of
management’s shortcomings (ineffective
management) such as inadequate coaching, failure
to take responsibility, unclear authority, inadequate
supervision
Managers must recognize their
own (or colleagues) faults and
correct them
Change analysis
Asks a series of “What if?” questions and projects
the consequences for each of the changes and for
all feasible combinations of change.
Hazards from planned or
unplanned changes that can cause
or caused undesired outcomes are
identified and corrected
Job safety analysis (JSA)
Evaluates repetitive human tasks, in an
environment sufficiently stable to allow most
hazards to be foreseen.
Hazard that are identified,
controls are defined, and
responsibility for implementing
each assigned
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Page 10
Joe works in an auto garage. His work area is cluttered
and disorganized. His supervisor is rarely in the area,
and Joe lacks direction and proper training. Joe is
injured when he receives a severe shock from
improper grounding while using a piece of electrical
equipment. This example best illustrates the accident
causation theory of the
A: System safety approach.
B: Technique of operations review (TOR) approach.
C: Energy transfer theory.
D: Domino theory.
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Page 11
Which one of the following system safety techniques is
best suited to analyze repetitive human tasks
performed in a sufficiently stable environment where
most hazards are foreseen?
A: Technique of human error rate prediction (THERP)
B: Failure mode and effect analysis (FMEA)
C: Job safety analysis (JSA)
D: Prototype analysis
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Page 12
System Safety Analysis
System Feature
Key Points
Components
•Physical elements
•Subsystems
•Flows (energy sources)
Purpose
Understand the purpose of the components
Environment
Understand system’s environment (aspects of larger
systems)
•Immediate physical environment
•Organizational (management) environment
•Socioeconomic/legal environment
Life cycle
•Conceptual
•Engineering
•Production
•Operational
•Disposal
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Page 13
Houma Mortgage leases a fleet of automobiles for its real
estate appraisers. During her review of recent vehicular
accidents, their risk manager is trying to identify failures,
human and/or mechanical, in order to target corrective
actions and prevent future losses by looking at ways in
which these accidents occurred and ways in which the
frequency or severity can be reduced. This is an example
of the
 A: Future states analysis.
 B: Sequence of events analysis.
 C: System safety technique.
 D: Technique of operations review approach.
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Page 14
Assignment 2: Root Cause Analysis
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Introduction to Root Cause Analysis
Failure Mode and Effects Analysis (FMEA)
Fault Tree Analysis (FTA)
“5 Whys” Analysis and the Fishbone Diagram
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Page 15
GROUP ACTIVITY
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Root cause analysis
Failure mode effects analysis (FMEA)
Fault tree analysis (FTA)
5 Whys analysis
Fishbone (Ishikawa) diagram
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Page 16
Group 1
Root cause analysis (RCA) encompasses a variety of
tools, philosophies, and processes. There are several
broadly defined RCA approaches, according to their
basic approach or field of origin. Which one of the
following approaches to RCA evolved from quality
control procedures for industrial manufacturing?
A: Production-based RCA
B: Safety-based RCA
C: Systems-based RCA
D: Failure-based RCA
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Page 17
Group 2
Air-Freight Co. wants to use failure mode and effects analysis
(FMEA) to analyze its systems, subsystems, components, subassemblies, and parts. Level 1 is the overall system for shipping
freight. Level 2 is the system segments, with the prime items (air
freight hubs, schedulers, and logistics) designated as Level 3. Level
4 is the subsystems (local freight handlers, package sorters, etc.).
Level 5 is the hardware and parts (forklifts, conveyor belts, planes,
and delivery vans, etc.). In FMEA, these various systems and
subsystems are called
 A: Complexity levels
 B: Critical levels
 C: Risk priority levels
 D: Indenture levels
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Page 18
Group 3
Using fault tree analysis, an "and" gate is connecting the
events in rectangles C, D, and E to the event in rectangle A.
If the probabilities of events in rectangles C, D, and E of the
fault tree are .10, .20, and .30, respectively, what is the
probability that the event in rectangle A will occur?
 A: .006
 B: .100
 C: .300
 D: .600
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Page 19
Group 4
Which one of the following is an advantage of "5 Whys"
analysis?
 A: It uses statistical data that has been collected.
 B: As it is a quantitative method, the result is a
precise mathematical measure, complete with
confidence levels.
 C: If the investigator asks an irrelevant question, the
analysis ends without additional follow-up questions.
D: When several root causes are found, it can help
determine the relationship among them.
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Page 20
Group 5
In a Fishbone (Ishikawa) Diagram, the diagonal lines
(the fish's bones) emanating from the horizontal arrow
(the fish's spine) represent
 A: Causes.
 B: Effects.
 C: Recommendations.
D: The problem being investigated.
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Page 21
An organization’s risk manager determines that loss
control supervision is lacking for a specific department.
By diagramming the consequences of this weakness,
the risk manager is employing
A: Technique of human error rate prediction (THERP)
B: Fault tree analysis (FTA)
C: Job safety analysis (JSA)
D: Failure mode and effect analysis (FMEA)
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Page 22
Assignment 3: Business Continuity
Management
• Introduction to Business Continuity
Management
• Business Continuity Planning
• Strategic Redeployment Planning
• Supply Chain Risk Management
• Crisis Communication
• Mitigating Supply Chain Risk
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Page 23
Business Continuity Planning
Steps
1. Understanding the
business
Understand all aspects of the
business, including determining
key objectives
Examine use of facilities, materials
supply chain, human resources,
communications, processes, etc.
Identify key processes that
constitute bases for BIA
2. Conducting a
business impact
analysis (BIA)
Identify and assess risks that may
affect organization; what events
may occur, when, and how
Measure financial and nonfinancial
effect of risks and explore
organizational vulnerabilities
Distinguish between critical
and noncritical processes
3. Performing a risk
assessment
Identify and evaluate potential
exposures and probability that
events will occur
Reveals exposures and assists in
establishing risk mitigation efforts
and action plans
Assessments conducted at
various levels: enterprise
assessment, site assessment,
and program or project
assessments (pg. 3.7)
4. Developing the
continuity plan
Use of one or more strategies:
active backup model, split
operations model, alternative site
model, contingency model (pg.
3.8)
Involves three levels of planning:
BCM organization strategy, process
level strategy, and resource
recovery strategy.
Consider strategic choices:
Insurance policy, transfer
processing, termination, loss
mitigation, or do nothing.
5. Implementing the
continuity plan
Approval and support from sr.
mgt.
Plan should include 7 elements
(pg. 3.9)
6. Building a BCM/BCP
culture
Vision statement and support
provided by sr. mgt.
Expectations and objectives set for
middle mgt. for maintenance of
departmental plans
7. Maintaining and
updating the plan
Review BCP in detail
Amend as internal or external
warrant
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media type
is strictly prohibited.
Educate staff on importance of
BCP; notify external suppliers
and customers of BCP
Page 24
Supply Chain Best Practices and
Mitigation Techniques
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Page 25
The development and implementation of a business
continuity plan entails seven steps. Which one of the
following steps involves assessing what events may
occur, when they will occur, and how they could
affect achievement of key objectives?
A: Performing a risk assessment
B: Understanding the business
C: Conducting a business impact analysis
D: Developing a continuity plan
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Page 26
Patricia’s Pies is a small bakery that makes various types of fruit
pies. The pies are only sold at local markets. Patricia’s is loyal to
the local community and has always depended on a local
farmer to supply the fruit for the pies. Due to drought
conditions this year, the local farmer’s crops have been poor
and he is unable to meet the supply needs of Patricia’s Pies.
Patricia’s is now contacting other farmers trying to meet its
fresh fruit demand, but the supplies are limited and the prices
are high. Which one of the following external threats in the
supply chain is Patricia’s facing?
 A: Change in demand level
 B: Single source supplier
 C: Geopolitical environment
 D: Sole source suppliers
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Page 27
Assignment 4: Physical Property Risk
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Physical Property Categories
Sources of Property Risk
Windstorm, Earthquake, and Flood Loss Control
Building - COPE
Life Safety
Valuing Physical Property
Legal Interests in Physical Property
Assessing and Treating Physical Property Risk
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Page 28
Key Concepts Assignment 4
Construction
• Know the distinctive characteristics of each major types (See Exhibit pg.
4.19)
Occupancy
• Know each of the six common types of occupancies
• What are primary ignition sources and risk control measures associated
with each
Protection
• Internal (private) risk control measures
o Fire Suppression Systems and Extinguisher Classes (4.28-4.29)
• External protection (public)
External Exposure
• Loss exposures and risk control measures
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Page 29
Challenging Assignment 4
EO 4.07
Explain how to use various methods to value
physical property.
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Page 30
Valuing Physical Property
Valuation Method
Description
Book Value
An asset’s historical cost (original cost of property)
minus accumulated depreciation.
Replacement Cost
The cost to repair or replace property using new
materials of like kind and quality with no
deduction for depreciation.
Functional Replacement Cost
The cost of replacing damaged property with
similar property that performs the same function
but might not be identical to the damaged
property.
Market Value
The price at which a particular piece of property
could be sold on the open market by an unrelated
buyer or seller.
Economic value
The amount that property is worth based on the
ability of the property to produce income.
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Page 31
Creative Catering has a 15 year old vehicle that was
originally built to prepare and serve sandwiches and
drinks at various outdoor functions such as car shows,
sporting events, etc. The vehicle is of low value but it
generates approximately $100,000 a year in sales. The
risk management professional will primarily be most
concerned about its
A: Reproduction cost.
B: Market value.
C: Functional replacement cost.
D: Economic value.
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Page 32
Risk Assessment and Treatment
Segment A
Segment B
● Intro to Risk
Assessment &
Treatment
● Intellectual Property
● Root Cause Analysis
● Business Continuity
● Physical Property
Risk
Segment C
● Environmental Risk
& Reputation Risk
● Crime & Cyber Risk
● Legal & Regulatory
Risk
● Fleet Risk
● Management
Liability
● Human Resource
Risk
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Page 33
Assignment 5: Intellectual Property
and Reputation Risk
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Introduction to Intellectual Property Risk
Copyrights
Trademarks
Patents
Trade Secrets
Valuing Intellectual Property
Reputation Risk
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Page 34
Challenging Assignment 5
•What types of works are
covered?
•What are requirements for
creation?
•What are others prohibited
from doing?
•What is the duration?
•What risk control measures
can be used?
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Page 35
Betty has invented a new device that reduces the time
it takes to backup computer data by 90 percent. She
believes this will be of interest to several major
computer and data manufacturers. Betty should
protect her invention with a
A: Copyright.
B: Trademark.
C: Patent.
D: Servicemark.
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Page 36
A duration of a design patent is
A: Three years from the date of application.
B: Fourteen years from the date of issuance.
C: Seventeen years from the date of registration.
D: Twenty years from the date of application.
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Page 37
Providence Pharmaceuticals believes that another
company is infringing upon its trademark. Providence
Pharmaceuticals' risk manager has instructed its legal
department to begin by sending a cease-and-desist
letter and, if that is unsuccessful, to follow up with a
notification of intent to sue. This is an example of
A: A restrictive covenant.
B: A search and watch.
C: A notice.
D: An enforcement of rights.
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Page 38
Assignment 6: Legal and Regulatory Risk
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Basis for Legal and Regulatory Risk
Legal and Regulatory Risk Consequences
Modifying Legal and Regulatory Risk
Legal Systems
International Law
Commercial Liability Loss Exposures
Assessing and Treating Legal and Regulatory Risk
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Page 39
Challenging Assignment 6
EO 6.04
Describe the characteristics of these predominant legal
systems:
• Civil law (including Roman-French, German, and
Scandinavian)
• Common law
• East Asian
• Hindu
• Islamic
• Socialist-Communist
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Page 40
As opposed to many other legal systems, a strong
characteristic of the East Asian countries' approach
to contract disputes is
A: A tradition of informal compromise.
B: The dominance of individual parties asserting their
rights in arms-length negotiations.
C: A combination of religious and philosophical
doctrines that inform judicial decisions.
D: The codification of historical business practices as
statutes.
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Page 41
The central idea of the Socialist-Communist law system
was the emphasis on
A: The state's right to acquire private property for
public purposes.
B: Individual production for the state.
C: Communal labor and property.
D: The state’s interest over that of individuals.
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Page 42
Assignment 7: Management
Liability
• Directors and Officers Liability Loss Exposures
• Employment Practices Liability Loss Exposures
• Fiduciary Liability Loss Exposures
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Page 43
Management Liability
Directors and Officers Liability
• Major responsibilities and fiduciary duties (care, loyalty, disclosure, obedience)
• Types of suits (derivative, no derivative, class action)
Employment Practices Liability
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Laws affecting EPL loss exposures (See exhibit on pg. 7.10)
Discrimination
Wrongful termination
Sexual harassment
Retaliation
Fiduciary Liability
• What is ERISA? Why enacted?
• What are the duties and responsibilities of employee benefit plan fiduciaries?
• What is HIPAA?
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Page 44
Challenging Assignment 7
EO 7.03
Describe the legal foundations for fiduciary liability loss
exposures, with specific reference to the
Employment Retirement Income Security Act (ERISA)
and the duties of employee benefit plan fiduciaries.
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Page 45
Duties and Liabilities of
Employee Benefit Plan Fiduciaries
• Care: ERISA specifies that a fiduciary must act with the care,
diligence, and skill that would be exercised by a reasonably
prudent person in the same or similar circumstances.
• Loyalty: A fiduciary must act in the best interests of the plan
and all of its participants and beneficiaries.
• Diversification: A fiduciary must ensure that the plan’s
investments are sufficiently diversified to minimize the risk of
large losses.
• Obedience: A fiduciary must act according to the plan
documents and applicable law.
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Page 46
The Employee Retirement Income Security Act (ERISA)
spells out the four duties of a benefit plan fiduciary.
Which duty requires that the fiduciary act with a
certain level of skill and diligence?
A: The duty of prudence
B: The duty of loyalty
C: The duty of diversification
D: The duty of adherence
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Page 47
Fiduciary liability loss exposures arise mainly when
beneficiaries of a plan make claim against the plan
officials for breach of their fiduciary duties. Which one of
the following is a specific duty of a plan fiduciary?
 A: To act in a way that is solely in the best interests of the
organization providing the benefits
 B: To ensure that the plan's investments are sufficiently
diversified to minimize the risk of large losses
 C: To carry out duties in such a way that no investment
plans will lose money for the beneficiaries
 D: To minimize actions that comply with the plan
documents but may not be in compliance with the law
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Page 48
Assignment 8: Human Resource Risk
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Human Resource Potential
Types of Personnel Losses
Assessing Personnel Loss Exposures
Risk Treatment for Work-Related Injury and
Illness
• Risk Treatment for Work-Related Violence
• Assessing and Treating Human Resource Risk
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Page 49
Challenging Assignment 8
EO 8.04
Explain how the following risk control techniques can
be used to mitigate losses arising from work-related
injury and illness:
• Avoidance
• Loss prevention
Safety Engineering
o Workplace Design
o
• Loss reduction
• Separation and duplication
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Page 50
Work-Related Loss Prevention
Safety Engineering
• Physical controls – physical
controls (engineering)
–
–
–
–
Isolation
Wet methods
Ventilation
PPE
• Procedural controls –
procedural controls
(administrative)
– Job rotation
– Supervision
– Other administrative steps
Workplace Design
Ergonomics – physical forces
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•
•
Manual materials handling
Cumulative trauma disorders
Physical layout of workstations
Displays and controls
Fatigue
Disabled employees
Human factors engineering –
human capabilities
Biomechanics – mechanical
limitations of people
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Page 51
A safety engineering physical control that might
be used by an organization to prevent or
reduce work-related injury and illness is
A: Job rotation.
B: Isolation.
C: Training.
D: Medical controls.
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Page 52
Which one of the following is a safety
engineering procedural control used to prevent
or reduce work-related injury or illness?
A: Materials substitution
B: Isolation.
C: Process change
D: Ventilation
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Page 53
A process that applies the knowledge of human
behavior to design equipment people use on
and off the job defines
A: Biomechanics.
B: Ergonomics
C: Process oriented progression.
D: Human factors engineering.
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Page 54
In the middle of a recession, Heavy Equipment Co. (HEC) was forced to
lay-off hundreds of employees. HEC hired Paul as a human resource
manager three weeks before the lay-offs were announced. Paul
agreed to have the lay-off notices sent to employees with his name
on the notice. However, he demanded several security measures
including that his office be located beyond a checkpoint with a
metal detector, his office door would remain locked, and any
employee who visited him would be escorted by a security guard.
The measures Paul required are examples of




A: Physical risk control measures.
B: Procedural risk control measures.
C: Managerial risk control measures.
D: Mechanical risk control measures.
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Page 55
Risk Assessment and Treatment
Segment A
Segment B
● Intro to Risk
Assessment &
Treatment
● Intellectual Property
● Root Cause Analysis
● Business Continuity
● Physical Property
Risk
Segment C
● Environmental Risk
& Reputation Risk
● Crime & Cyber Risk
● Legal & Regulatory
Risk
● Fleet Risk
● Management
Liability
● Human Resource
Risk
Recording of this session via any media type is strictly prohibited.
Page 56
Assignment 9: Environmental Risk
•
•
•
•
Legal Foundations for Environmental Liability
Other Environmental Loss Exposures
Environmental Statutes
Environmental Risk Management, Risk
Assessment, and Risk Control
• Climate Change Risk
• Assessing and Treating Environmental Risk
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Page 57
Challenging Assignment 9
EO 9.03
Summarize the basic purpose and distinguishing
features of each of the environmental statutes
described.
• See Exhibit Page 9.11 “Summary of Federal
Environmental Laws”
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Page 58
Which one of the following federal environmental
statutes facilitates the cleanup of any abandoned or
uncontrolled site containing hazardous substances
and imposes strict liability for cleanup costs on
potentially responsible parties?
A: Toxic Substance Control Act
B: Clean Air Act
C: Resource Conservation and Recovery Act (RCRA)
D: Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA)
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Page 59
Bethel Co. would like to apply a risk control measure to better
manage its environmental loss exposures. The company produces
a liquid similar to formaldehyde. A byproduct of the production
process is the creation of a toxic liquid. One option Bethel is
exploring is using a more expensive raw material that cuts the
byproduct produced by over 40 percent. Other alternatives are to
burn the byproduct in an industrial furnace, to add a powder to
the byproduct that will transform it into a gelatin-like substance,
or to bury the substance in double-barrels stored in a concrete
bunker. Bethel chose the option of using the more expensive raw
material that cuts the byproduct produced by over 40 percent.
The risk control Bethel opted for is called
 A: Solidification disposal.
 B: Encapsulation.
 C: Source reduction.
 D: Stabilization disposal.
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Page 60
Assignment 10: Crime and Cyber Risk
•
•
•
•
•
Distinctive Features of Crime Risk
Characteristics of Common Crimes
Controlling Crime Losses
Cyber Risk Loss Exposures
Controlling and Financial Cyber Risk Loss
Exposures
• Social Media Risk
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Page 61
Key Concepts Assignment 10
•Be able to describe the
characteristics of common crimes.
•Be able to distinguish between
policy, physical, procedural,
managerial controls and application
to specific crimes
•Be able to explain cyber risk in
property, net income, and liability loss
exposures and risk control measures
(physical, procedural, etc.)
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Page 62
Using violence, intimidation, or threats to
influence others’ behavior, often for a political
purpose, is called
A: Kidnapping.
B: Extortion.
C: Blackmail.
D: Terrorism.
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Page 63
Specialized risk control measures are necessary for an
organization to control cyber risk loss exposures. Which one
of the following risk control measures would be most effective
at preventing cyber risk-related losses such as the theft of
customer credit card data?
 A: Post-cyber incident rapid recovery program
 B: High limits cyber insurance with a coordinated deductible
plan
 C: Notification of law enforcement officials when
unauthorized entry to the computer system is detected
 D: Managerial controls such as monitoring compliance with
the security plan
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Page 64
Assignment 11: Fleet Risk
• Fleets as Systems
• Federal Motor Carrier Safety Regulations
• Controlling Losses Associated With Motor
Vehicle Safety Systems
• Technological Advances in Motor Vehicle Fleet
Safety
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Challenging Assignment 11
EO 11.01
Explain how fleets can be viewed as systems and the
implications for fleet loss control.
• Components and purpose
• Environment
• Life cycle
• Systems and relationships
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Challenging Assignment 11
Life Cycle
Conceptual
Phase
Disposal
Phase
Operational
Phase
Engineering
Phase
Production
Phase
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Challenging Assignment 11
Systems and Relationships
• When subsystems fail, increases chance of loss in the
larger system components
o
Brake failure likely to cause accident
• When the larger system fails, it strains the
subsystems
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The importance of systems relationships from a risk control
and fleet management perspective is that
 A: When a smaller system fails, the larger system of
which the smaller system is a part is more likely to fail.
 B: Focusing on the larger system of which the smaller
system is a part will result in the best risk management
outcomes.
 C: Failure of any component leads to increased strain on
only smaller subsystems.
 D: Directing all risk management energy toward smaller
systems is most cost-effective.
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