Reference no: EM13200494
1. Examine the nature of risk within a firm through losses and opportunities with a focus on the mitigation of risk
2. Analyze risk management processes used to reduce risk exposures such as life, health, retirement, property and liability
3. Explain risk management through both a business and personal decision-making perspective
4. Appraise liability risk management through the legal system
5. Compare employee-based programs including health and life insurance as well as retirement planning
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CASE 1: ABC MOVING COMPANY
ABC Moving Company is a sole proprietorship owned by Mr. Jay Smith. Mr. Smith worked as the transportation company for a manufacturing facility for 20 years before the facility closed five years ago. Mr. Smith is 46 years old. For the past three years, the company's only employees have been Mr. Smith, his 42 year old wife and 20 year old son. When they need extra help with large moving jobs, they hire high school students and pay them cash. For the past three years, ABC has used one large moving van (2007 GMC 7500) which was purchased used for $30,000 when Mr. Smith started the business. The odometer on the moving van shows 187,000 miles. Mr. Smith was able to pay off the van during the first year of the business. With only one moving van, ABC Moving limited their services to a 200 mile radius of their location in Lincoln, Nebraska.
After placing an advertisement in the local paper and on the cable television station, ABC has seen their business increase to the point that they need to expand the business. Last month after working long hours to meet increased demand, Mr. Smith fell and injured his spine. In order to keep insurance costs reasonable, the Smith family purchased a high deductible insurance plan and when Mr. Smith was injured, they had to pay $10,000 out of pocket for medical care. Mrs. Smith hired a temporary employee to assist while Mr. Smith is recovering.
This week, they learned that although Mr. Smith's recovery is going well, he will no longer be able to do the heavy lifting required in moving furniture. To regain full use of his back, he is going to need to spend several weeks working with a physical therapist. Mr. Smith's injury means that ABC is down to one driver for the moving van. Mr. Smith insisted last year that Mrs.
Smith get a commercial driver's license (CDL) so that she could drive the moving van. Mr. Smith's son is driving on a restricted license due to several speeding tickets and he is not eligible to obtain a CDL to drive the truck. Also, the company cannot afford insurance to cover the son because he is under 25 and has several tickets. ABC is going to need at least one more full-time employee and two temporary employees to accommodate their schedule for the next few months.
As part of his marketing campaign, Mr. Jones committed to providing moving services within a 500 mile radius of Lincoln, more than doubling the area covered by the company. To accommodate the need to move beyond the three-county area, Mr. Jones purchased two used box trucks, a 2007 International 4300 with 102,000 miles and a 2011 Isuzu NPR with 85,000 miles. Mr. Jones financed the cost of the trucks ($80,000) using an equity line of credit he had established as a second mortgage against the office building where the company is located.
The equity line of credit has an interest rate of 5.65 percent. The first mortgage on the office building is for $75,000 at 6 percent APR. Last year, the office building was appraised at $175,000. Mr. and Mrs. Smith's home was not used to finance the business because the home declined in value from $450,000 to 300,000 due to the downturn in the housing market in Lincoln. They owe $190,000 on the mortgage.
Mr. Jones is very concerned about the future of ABC Moving. On the recommendation of a friend, he hired you to evaluate the risks associated with the expansion of ABC Moving and to design a plan for mitigating the risks.
PART 1: CASE ANALYSIS
Prepare a 12-20 slide PowerPoint presentation for Mr. Smith that addresses each of items listed below. For each slide, you are required to have speaker notes that are a minimum of 250 words.
1. The five major risks faced by ABC Moving Company
2. Risk mitigation strategies for each of the five major risks
3. Financial implications of the risks and the risk mitigation strategies
4. Legal issues related to the risks and the risk mitigation strategies
5. Two opportunities that exist for ABC Moving Company
6. The insurance needs of the company including business property and liability, health, life, and retirement.
Part 2: INSURANCE QUOTES
After you presented your risk analysis to Mr. Smith, he asked you to research costs associated with purchasing the insurances that you recommended. You agreed to compile three estimates for each type of insurance and present a summary of your findings to Mr. Smith in a three to five page report. For each insurance quote, you should include the name of the company, the name of the company representative, and the date you contacted the representative. The report should include:
A. Three quotes for business property and liability insurance with information on the insurance companies
B. Three quotes for health insurance for the family and employees with contact information for the estimates
C. Three quotes for insurance on the moving vans with contact information for the estimates
D. Three suggestions on retirement planning
E. Three quotes on life insurance for Mr. and Mrs. Smith. Both Mr. and Mrs. Smith are in good health and are non-smokers. You should include the names of the companies and the contact names.
F. Summary of the most critical actions that Mr. Smith needs to take in securing the proper insurance coverage.
PART 3: RISK MANAGEMENT
This part of the project requires you to focus on an existing organization and on enterprise risk management (ERM) for that organization, including measures of risk and utilization of selected risk management tools. The organization you focus on will be one you select and are familiar with. It could be an organization where you currently work or where you have worked in the past, or an organization that you frequently do business with. Absent any of those, it could be an organization you want to become familiar with. You are to:
1. Develop a plan for organizing and implementing the enterprise risk management (ERM) function for the organization.
2. Select and describe at least four measures of risk that would be most appropriate for the organization's situation. Provide an example of each risk measurement and explain how the resulting metrics should be interpreted.
3. Develop a risk profile
4. Develop a risk map from your risk profile that:
a. Identifies the risks
b. Estimates the frequency and severity of each risk
c. Categorizes the risks based on the following categories; natural and man-made risks, financial risks, business risks, and operational risks
d. Complete a cost benefit analysis for at least four of the risks included on the risk map
5. Present your findings in an eight to ten-page business report. The business report will be submitted to the president of the organization identified. A copy of the risk map should be included as an appendix to the business report.
Reviewing your paper and presentation before submission is very important. Please complete the following steps to ensure that your paper is ready for submission.