RSM271Z Summaries
, RSM271Z Risk management (RM)
Exam papers of Jan & Oct 2010, Oct 2011, Jan 2012, Jan & Oct 2013, Jan & Oct 2014, Jan & Oct
2015, Jan & Oct 2016 & Jan 2017. Study guide activities 2014, Assignments up to, including 2017
1. Risk avoidance: Risk control technique & measure (4) Jan & Oct 2010, Jan 2011, Oct 2012, Jan
& Oct 2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 201 Lector answer
Taking action so as not to incur the risk in the first place
Some risks can be avoided by not carrying out specific activities
Risks of an injury can be avoided e.g. by not taking part in dangerous sports
In the business environment avoiding a risk is, unfortunately, rarely possible
Areas prone to the occurrence of 1 or more perils will be avoided where possible
Better to avoid sites, which are subject to regular flooding or tornadoes
Easier to accomplish for certain perils than other
Location of the premises is depending on factors beyond management control, like thermal power
stations near sources of coal
2. Risk elimination: Risk control technique & measure (3) Jan 2010, Jan 2011, Oct 2012, Jan &
Oct 2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 201 Lector answer
Doing away with existing risks
Has the same final result as risk avoidance
Except that in the case of elimination, the particular risk already exists &
Elimination will generally require a relocation to an area which is:
o Free from the natural perils that is to be eliminated
o Cease the activity
3. Legislation: Risk control technique & measure (3) Jan 2010, Jan 2011, Oct 2012, Jan & Oct
2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 201 Lector answer
Laws that are designed to control certain risk
E.g. OHSA: Objective is to protect the employee from work related hazards
In the interest of government & the local authority to avoid / eliminate natural perils affecting the
people for whom these authorities are responsible
Statutes are designed with the objective of avoiding unnecessary exposure to natural perils
E.g. of this legislation the Water act, states that no township may be established or extended
without the flood levels expected at prescribed flood recurrence intervals being indicated on the
layout plan
Comply with statutes e.g. OHSA
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,4. Risk reduction: Risk control technique & measure (3) Jan & Oct 2010, Jan 2011 & Oct 2012,
Jan & Oct 2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 202 Lector answer
Reducing the risk by controlling its frequency & its severity
It starts with legislation where minimum standards are laid down & aim at protecting the well-being of
society
Aimed at the reduction of loss / damage caused by 1 or more natural perils
Starts at government level with legislation such as:
o National building regulations where standards laid down in regulating construction
o Features required, protecting buildings against water, storm, hail & earthquakes
o Any action that produces the risk of damage, losses or injury e.g. Machine guards
5. Emergency planning: Risk control techniques & measure (2) Jan & Oct 2015 & Jan 2017 P 202
Trice Lector answer
Natural perils will constitute emergency situations where & when they strike
Emergency planning is important &
Aimed at reducing the severity of the impact
6. Natural perils (2) Oct 2014, Jan & Oct 2015, Jan 2017 (4 Times) P 200 PQ 2014 Lector answer
Those hazards or pure risks generally arising from natural causes, as opposed to losses brought
about by human actions
Refereed to an act of God. Includes fire, flood, storms & earthquakes
7. Identification methods: used by a risk manager (8) Oct 2014 & Jan 2015 (Twice) PQ 2014 P 114
-120 Lector answer Assignment question 2016
Safety audits
Research
Risk inspections
Hazard indices
Hazard & operability studies
Failure mode & effect analysis - evaluates the frequency & consequence of component failures 2016 assig
Fault-tree analysis
Legislation & codes of practice
8. 3 Managerial risk categories on the macro level in a corporate environment Oct 2015, Oct 2016
& Jan 2017 Lector answer
Inherent business & incidental risks
Pure & speculative risks
Operational risks
9. Peril: Source of loss P 28 /P35 Lector answer assignment 2017
10. Corporate governance is the relationship among: Oct 2015, Oct 2016 & Jan 2017 lector answer
Management of the corporation, board, shareholders & other relevant stakeholders & specific
responsibilities to ensure & maintain these relationships
11. Cost of risk sum Assignment 2017 (Lector answer)
Administrative costs
Insurance cost
Risk control & loss prevention expenses
Page 2 of 33
, Unreimbursed losses (self-insured, self-retained)
12. Reasons why people & organisations apply RM (20) Oct 2013 & Jan 2016 (Twice) PQ2014
(lector answer) P 7 or
Criteria are applied when a risk manager considers specific proposals aimed at reducing risk
Steps are cost-beneficial: Most common reason for making any decision to reduce risks
Include financial gain, investing & producing return capital
Spending on installing a sprinkler system
Risk analysis play a critical role in calculating the cost benefit
There should be a comparison between the risk involved & the money to be spent in order to
reduce the risk to the acceptable level
People have an aversion /dislike to risk:
In this regard, RM will be applied with no cost benefit
There are risk-takers such, as bankers who operate in the private sector
Bankers will ensure that they have adequate security for the loan before lending money
Factors influencing the decision to implement risk control measures:
o Magnitude of the possible loss
o Size & magnitude of the maintenance budget in relation to the risk control expenditure
Authoritative reasons:
Decisions to implement risk control measures e.g. avoiding a lawsuit / being charged with
culpable homicide
Common forms of authoritative reasons:
o Legislation
o Society of community
o Acceptable codes of practice
Policy-based decisions:
Company policy is important in making the decisions, e.g. employees wellbeing, obtaining the ISO
9000 certificate in order to enhance the quality & image of the product
Develop & implement a quality assurance system
13. Estimate maximum loss (EML): Reasonable estimated extent of loss resulting from a single event,
given that the risk control measures instituted may not entirely perform that task of loss containment
or loss reduction attributed to them
Generally less than a total loss & the maximum foreseeable loss
Oct 2013, Oct 2014, Jan 2015 & Oct 2016 (4 Times) P 126
14. Normal loss expectancy (NLE): Average loss that could result from a single event, given that all risk
control measures operate as expected
Oct 2013, Oct 2014, Jan 2015 & Oct 2016, assignment 2017 (5 Times) P 127
15. Maximum foreseeable loss (MFL): Value of the largest possible loss from a single event that is
reasonably foreseeable under the most adverse conditions OR
Measure of loss given the pessimistic estimate to possible losses expected under varying worst case
conditions & assumptions, thus a catastrophic type of loss P 125 (5) Oct 2016
16. Five classes of financial consequences (5) Jan 2014 & PQ 2014 P 45
Interest rate risk
Investment (capital) risk
Credit risk
Currency risk
Page 3 of 33
, RSM271Z Risk management (RM)
Exam papers of Jan & Oct 2010, Oct 2011, Jan 2012, Jan & Oct 2013, Jan & Oct 2014, Jan & Oct
2015, Jan & Oct 2016 & Jan 2017. Study guide activities 2014, Assignments up to, including 2017
1. Risk avoidance: Risk control technique & measure (4) Jan & Oct 2010, Jan 2011, Oct 2012, Jan
& Oct 2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 201 Lector answer
Taking action so as not to incur the risk in the first place
Some risks can be avoided by not carrying out specific activities
Risks of an injury can be avoided e.g. by not taking part in dangerous sports
In the business environment avoiding a risk is, unfortunately, rarely possible
Areas prone to the occurrence of 1 or more perils will be avoided where possible
Better to avoid sites, which are subject to regular flooding or tornadoes
Easier to accomplish for certain perils than other
Location of the premises is depending on factors beyond management control, like thermal power
stations near sources of coal
2. Risk elimination: Risk control technique & measure (3) Jan 2010, Jan 2011, Oct 2012, Jan &
Oct 2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 201 Lector answer
Doing away with existing risks
Has the same final result as risk avoidance
Except that in the case of elimination, the particular risk already exists &
Elimination will generally require a relocation to an area which is:
o Free from the natural perils that is to be eliminated
o Cease the activity
3. Legislation: Risk control technique & measure (3) Jan 2010, Jan 2011, Oct 2012, Jan & Oct
2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 201 Lector answer
Laws that are designed to control certain risk
E.g. OHSA: Objective is to protect the employee from work related hazards
In the interest of government & the local authority to avoid / eliminate natural perils affecting the
people for whom these authorities are responsible
Statutes are designed with the objective of avoiding unnecessary exposure to natural perils
E.g. of this legislation the Water act, states that no township may be established or extended
without the flood levels expected at prescribed flood recurrence intervals being indicated on the
layout plan
Comply with statutes e.g. OHSA
Page 1 of 33
,4. Risk reduction: Risk control technique & measure (3) Jan & Oct 2010, Jan 2011 & Oct 2012,
Jan & Oct 2014, Jan & Oct 2015, Jan 2016 & Jan 2017 (10 Times) P 202 Lector answer
Reducing the risk by controlling its frequency & its severity
It starts with legislation where minimum standards are laid down & aim at protecting the well-being of
society
Aimed at the reduction of loss / damage caused by 1 or more natural perils
Starts at government level with legislation such as:
o National building regulations where standards laid down in regulating construction
o Features required, protecting buildings against water, storm, hail & earthquakes
o Any action that produces the risk of damage, losses or injury e.g. Machine guards
5. Emergency planning: Risk control techniques & measure (2) Jan & Oct 2015 & Jan 2017 P 202
Trice Lector answer
Natural perils will constitute emergency situations where & when they strike
Emergency planning is important &
Aimed at reducing the severity of the impact
6. Natural perils (2) Oct 2014, Jan & Oct 2015, Jan 2017 (4 Times) P 200 PQ 2014 Lector answer
Those hazards or pure risks generally arising from natural causes, as opposed to losses brought
about by human actions
Refereed to an act of God. Includes fire, flood, storms & earthquakes
7. Identification methods: used by a risk manager (8) Oct 2014 & Jan 2015 (Twice) PQ 2014 P 114
-120 Lector answer Assignment question 2016
Safety audits
Research
Risk inspections
Hazard indices
Hazard & operability studies
Failure mode & effect analysis - evaluates the frequency & consequence of component failures 2016 assig
Fault-tree analysis
Legislation & codes of practice
8. 3 Managerial risk categories on the macro level in a corporate environment Oct 2015, Oct 2016
& Jan 2017 Lector answer
Inherent business & incidental risks
Pure & speculative risks
Operational risks
9. Peril: Source of loss P 28 /P35 Lector answer assignment 2017
10. Corporate governance is the relationship among: Oct 2015, Oct 2016 & Jan 2017 lector answer
Management of the corporation, board, shareholders & other relevant stakeholders & specific
responsibilities to ensure & maintain these relationships
11. Cost of risk sum Assignment 2017 (Lector answer)
Administrative costs
Insurance cost
Risk control & loss prevention expenses
Page 2 of 33
, Unreimbursed losses (self-insured, self-retained)
12. Reasons why people & organisations apply RM (20) Oct 2013 & Jan 2016 (Twice) PQ2014
(lector answer) P 7 or
Criteria are applied when a risk manager considers specific proposals aimed at reducing risk
Steps are cost-beneficial: Most common reason for making any decision to reduce risks
Include financial gain, investing & producing return capital
Spending on installing a sprinkler system
Risk analysis play a critical role in calculating the cost benefit
There should be a comparison between the risk involved & the money to be spent in order to
reduce the risk to the acceptable level
People have an aversion /dislike to risk:
In this regard, RM will be applied with no cost benefit
There are risk-takers such, as bankers who operate in the private sector
Bankers will ensure that they have adequate security for the loan before lending money
Factors influencing the decision to implement risk control measures:
o Magnitude of the possible loss
o Size & magnitude of the maintenance budget in relation to the risk control expenditure
Authoritative reasons:
Decisions to implement risk control measures e.g. avoiding a lawsuit / being charged with
culpable homicide
Common forms of authoritative reasons:
o Legislation
o Society of community
o Acceptable codes of practice
Policy-based decisions:
Company policy is important in making the decisions, e.g. employees wellbeing, obtaining the ISO
9000 certificate in order to enhance the quality & image of the product
Develop & implement a quality assurance system
13. Estimate maximum loss (EML): Reasonable estimated extent of loss resulting from a single event,
given that the risk control measures instituted may not entirely perform that task of loss containment
or loss reduction attributed to them
Generally less than a total loss & the maximum foreseeable loss
Oct 2013, Oct 2014, Jan 2015 & Oct 2016 (4 Times) P 126
14. Normal loss expectancy (NLE): Average loss that could result from a single event, given that all risk
control measures operate as expected
Oct 2013, Oct 2014, Jan 2015 & Oct 2016, assignment 2017 (5 Times) P 127
15. Maximum foreseeable loss (MFL): Value of the largest possible loss from a single event that is
reasonably foreseeable under the most adverse conditions OR
Measure of loss given the pessimistic estimate to possible losses expected under varying worst case
conditions & assumptions, thus a catastrophic type of loss P 125 (5) Oct 2016
16. Five classes of financial consequences (5) Jan 2014 & PQ 2014 P 45
Interest rate risk
Investment (capital) risk
Credit risk
Currency risk
Page 3 of 33
