RSK4801_EXAM_PACK
,RSK 4801
MAY/JUNE 2014
Question 1
Reliable electricity supply has been identified as a priority by the board. The managing
director has requested you to evaluate the current strategy with regard to the electricity
supply to the production facilities, with regard to the events, causes for the events and the
impact of the events. Your evaluation should also include key supplier dependencies. Argue
what actions the company can implement to mitigate the impact of similar future events.
Events/ Risk Causes Impact
Disruption in electricity Unreliable supply of • The business was not able to
supply electricity sustain its operations at full
capacity
• The financial impact of business
interruption amounted to 700
million for 2012, and 900
million in 2013resulting in
decreased production levels
• The financial impact of 5 million
in 2012 and 7 million in 2013 as
a result of the spoilage of stock
costs as move revenue was
channeled to purchase generators
• Increased operating costs as
more fuel was required to keep
generators operation at their full
capacity
•
External Events Unreliable-national • Loss of market share especial in
grid the international market as most
of the fish was exported
• The impact was more severe as
the healthy fish lost its internal
credibility and therefore it might
take a very long time to recover
• This unreliable source of
electricity persuaded customers
to decide on the other reliable
alternative suppliers
Prolonged National strike Demand for higher • Contributed to a decrease in the
wages supply of fuel which had a
significant impact on the
, company as the backup
generators were not able to run
at a full capacity
• This increased production costs
and it became difficult to
maintain an infrastructure within
the budgeting constraints
Higher operating cost of Unreliable supply of • Back capacity contributed to
maintaining the fuel supply electricity short falls as it was not enough
to generate the amount of
electricity supply required
Process Risk e.g. shortage of Unreliable supplier of • Reduced production or
fuel fuel interruption or interruption of
business process if the supplier
is not able to provide fuel at
required times
• It will be prudent to have more
than one supplier because
reliance on one supplier would
affect their processes
a. Electricity supply events, causes and the impact.
From and electricity supply perspective, the company is reliant on two suppliers, the national
supplier and the electricity supplied by the backup generators. Both can be regarded as key
suppliers, as without electricity, a large component of the business will not be able to sustain its
business.
The electricity supplied by the national grid is outside the control of the company as the
company is a buyer of the available supply.
The company can control the backup generating capacity, but is then exposed to the cost to
creating and maintain an infrastructure within the budgetary constraints. The company must also
ensure a sufficient fuel supply for the generators and although storage capacity for the fuel can
be increased, the fuel needs to be replenished.
The company increased its backup capacity after it experienced the shortfalls from the national
grid in 2012. The fuel strike in 2013 had a severe impact on production as the company ran out
of fuel to maintain production. The fuel storage tanks had insufficient capacity for production
longer than 2 hours at the Main Production Facility and 4 hours at the Value Added Facility. The
fuel is supplied by one primary supplier, which can be regarded as a single point of failure
should the primary supplier not be able to supply the fuel.
, The financial impact of the business interruption was R700 million for 2012 and R900 million
for 2013. In terms of the Operational Risk Evaluation Matrix, the monetary impact can be rated
as 3 for 2012 and 4 for 2013. The amount that the company was able to claim was limited to R5
million for 2012 and R7 million for 2013.
Another impact that should be considered is the loss of markets, especially international markets
as a component of the catch of fish is exported. The impact can be severe if Healthy Fish loses its
international accreditation as it may be difficult to recover. From a reputational perspective the
company can be regarded as an unreliable supplier and customers may decide to seek alternative
suppliers.
b. Actions that the company can take to mitigate similar future events.
It is clear from the analysis that the business interruption caused by the electricity can be
catastrophic for the company. The company can take the following actions to mitigate similar
future events:
1. Review insurance policies with regard to spoilage of products. The amounts that the company
was able to claim for spoilage of the catch were below the actual loss. The policy should be
reviewed to provide for a more realistic projection of losses which caused interruption in the
electricity supply. The company can also consider setting up a captive.
2. Increase the onsite fuel storage facilities. The current storage facilities for the backup
generators are limited to 2 000l for both plants. The risk management department should perform
a detailed analysis of the usage of fuel over the last two years to determine the optimal onsite
storage facilities. The calculation should incorporate the possibility that the supplier may be
prevented from delivering top-up fuel.
3. More than one fuel supplier. The primary fuel supplier was not able to provide fuel during the
strike, which caused a single point of failure during the transport strike. The company must
appoint a primary and secondary supplier for both sites. The primary and secondary suppliers
should preferably be different where possible to maintain supplies should the primary supplier be
prevented from delivering fuel.
4. Consider installing wind/solar backup facilities. The company is reliant on the national grid as
the main supplier of electricity. To rely on diesel generators for backup is expensive and can be
prohibitive for prolonged periods. The company should consult with energy experts on solar or
wind energy as alternative for the backup generators. If feasible, the benefit is that both forms are
renewable and can be used as the main supply with the national grid supplying the shortfall. The
current backup generators can then be activated when necessary.
,RSK 4801
MAY/JUNE 2014
Question 1
Reliable electricity supply has been identified as a priority by the board. The managing
director has requested you to evaluate the current strategy with regard to the electricity
supply to the production facilities, with regard to the events, causes for the events and the
impact of the events. Your evaluation should also include key supplier dependencies. Argue
what actions the company can implement to mitigate the impact of similar future events.
Events/ Risk Causes Impact
Disruption in electricity Unreliable supply of • The business was not able to
supply electricity sustain its operations at full
capacity
• The financial impact of business
interruption amounted to 700
million for 2012, and 900
million in 2013resulting in
decreased production levels
• The financial impact of 5 million
in 2012 and 7 million in 2013 as
a result of the spoilage of stock
costs as move revenue was
channeled to purchase generators
• Increased operating costs as
more fuel was required to keep
generators operation at their full
capacity
•
External Events Unreliable-national • Loss of market share especial in
grid the international market as most
of the fish was exported
• The impact was more severe as
the healthy fish lost its internal
credibility and therefore it might
take a very long time to recover
• This unreliable source of
electricity persuaded customers
to decide on the other reliable
alternative suppliers
Prolonged National strike Demand for higher • Contributed to a decrease in the
wages supply of fuel which had a
significant impact on the
, company as the backup
generators were not able to run
at a full capacity
• This increased production costs
and it became difficult to
maintain an infrastructure within
the budgeting constraints
Higher operating cost of Unreliable supply of • Back capacity contributed to
maintaining the fuel supply electricity short falls as it was not enough
to generate the amount of
electricity supply required
Process Risk e.g. shortage of Unreliable supplier of • Reduced production or
fuel fuel interruption or interruption of
business process if the supplier
is not able to provide fuel at
required times
• It will be prudent to have more
than one supplier because
reliance on one supplier would
affect their processes
a. Electricity supply events, causes and the impact.
From and electricity supply perspective, the company is reliant on two suppliers, the national
supplier and the electricity supplied by the backup generators. Both can be regarded as key
suppliers, as without electricity, a large component of the business will not be able to sustain its
business.
The electricity supplied by the national grid is outside the control of the company as the
company is a buyer of the available supply.
The company can control the backup generating capacity, but is then exposed to the cost to
creating and maintain an infrastructure within the budgetary constraints. The company must also
ensure a sufficient fuel supply for the generators and although storage capacity for the fuel can
be increased, the fuel needs to be replenished.
The company increased its backup capacity after it experienced the shortfalls from the national
grid in 2012. The fuel strike in 2013 had a severe impact on production as the company ran out
of fuel to maintain production. The fuel storage tanks had insufficient capacity for production
longer than 2 hours at the Main Production Facility and 4 hours at the Value Added Facility. The
fuel is supplied by one primary supplier, which can be regarded as a single point of failure
should the primary supplier not be able to supply the fuel.
, The financial impact of the business interruption was R700 million for 2012 and R900 million
for 2013. In terms of the Operational Risk Evaluation Matrix, the monetary impact can be rated
as 3 for 2012 and 4 for 2013. The amount that the company was able to claim was limited to R5
million for 2012 and R7 million for 2013.
Another impact that should be considered is the loss of markets, especially international markets
as a component of the catch of fish is exported. The impact can be severe if Healthy Fish loses its
international accreditation as it may be difficult to recover. From a reputational perspective the
company can be regarded as an unreliable supplier and customers may decide to seek alternative
suppliers.
b. Actions that the company can take to mitigate similar future events.
It is clear from the analysis that the business interruption caused by the electricity can be
catastrophic for the company. The company can take the following actions to mitigate similar
future events:
1. Review insurance policies with regard to spoilage of products. The amounts that the company
was able to claim for spoilage of the catch were below the actual loss. The policy should be
reviewed to provide for a more realistic projection of losses which caused interruption in the
electricity supply. The company can also consider setting up a captive.
2. Increase the onsite fuel storage facilities. The current storage facilities for the backup
generators are limited to 2 000l for both plants. The risk management department should perform
a detailed analysis of the usage of fuel over the last two years to determine the optimal onsite
storage facilities. The calculation should incorporate the possibility that the supplier may be
prevented from delivering top-up fuel.
3. More than one fuel supplier. The primary fuel supplier was not able to provide fuel during the
strike, which caused a single point of failure during the transport strike. The company must
appoint a primary and secondary supplier for both sites. The primary and secondary suppliers
should preferably be different where possible to maintain supplies should the primary supplier be
prevented from delivering fuel.
4. Consider installing wind/solar backup facilities. The company is reliant on the national grid as
the main supplier of electricity. To rely on diesel generators for backup is expensive and can be
prohibitive for prolonged periods. The company should consult with energy experts on solar or
wind energy as alternative for the backup generators. If feasible, the benefit is that both forms are
renewable and can be used as the main supply with the national grid supplying the shortfall. The
current backup generators can then be activated when necessary.
