Question

The risk management department for a large industrial firm has carefully recorded details and costs of the firm's LOST-TIME INJURY ACCIDENTS (injury accidents which cause a loss of production time), NON-LOST-TIME INJURY ACCIDENTS (injury accidents which do not result in lost production time) and DAMAGE ACCIDENTS (accidents where there is nobody is injured but which result in damage to property, plant and/or equipment). You may assume that the incidence of accidents for each category is frequent and that estimates of their average severity, based on the records, are likely to be representative of future losses REQUIRED: Explain HOW the information contained in the accident records could be used towards making improved RISK CONTROL and RISK FINANCING decisions for the forthcoming period

Answer 1

The information and details collected by the large industrial firm to plan the improvement in the Risk Control and to have Risk Financing decisions for future period though:

1) Being a large industrial firm, the firm must take care of the workers engaged in the factory and would not let accidents happen through Risk Controlling measures and non-injury precautions with whatever cost firm have to incure.

2) Also, being the large industrial firm, losing production time or having the damaged property and equipments would put the firm in a loss position. The Risk financing will be at the cost of minimum loss.

3) The firm has to plan all those Risk control steps which are “workers life” and “production loss”, but this always a matrix which every firm’s management has to solve each year while setting the “Risk Financing Budget”.

4) Because the expenses done in the “Risk Financing Budget” do not bring direct profits to the firm but if the factory is having a safer environment, the workers would work freely and fetch profits to the firm.

5) The profits gained through the non-loss of production time and less repair and maintenance of equipments would compensate the Cost incurred to have appropriate “Risk Control” measures.

6) The firm should not go to have a moderate Risk Control systems, to save cost, because it will not help in the severe accidents and risky moments. Firms should have most appropriate Risk control measures at a affordable costs.

Thus, the accidents information and details would provide the limitation to firm’s management to adopt the Risk Control systems at an appropriate level of Risk Financing.