Question 1

As far as providing an explanation for the concept risk transfer, it can be certainly
notified that across multiple platforms / academic sources or authors , they have defined
the concept in different but meaningful / understanding ways , one of which being,
according to Google Search, “ risk transfer can be defined as a risk management and
control strategy that includes / involves the contractual transfer of pure risk from one
component to another “ ( www.cna.com ). The most common practice being performed
is by buying an insurance policy, which a specified risk of loss is moved from the
policyholder to the insurer (www.cna.com ). The analysis of insurance adequacy for the
caravan park, based on the case study , Mr Sigcau has decided to insure the park
against fire for R1 million at a monthly premium of R10,000 , highly insufficient or lack of
security in addition to where the caravan park is situated it’s unfortunately resulted to a
rapid growth of theft and burglary making Mr Sigcau to place a clause in the camp rules
officially stating that the “ park management is not responsible for any losses resulting
from theft or natural causes and another clause stating that the park management is not
liable for any losses suffered by campers because of the unavailability of the park due
to unforseen natural causes ( eg floods , fire etc ) “, which was made mandatory that
every customer / visitor must then sign before entering the premises, lastly Mr Sigcau
has also decided to take out an additional R1 million insurance policy at a premium of
R10,000pm for any potential loss that the business may experience. In terms of
recommendation that will ensure adequate insurance cover for Mr Sigcau’s business
,one of the following suggestions could be , Mr Sigcau needs to firstly have a very clear
and concise understanding of his business risk exposure and also the effectiveness of
controls that happen to be already present in order to reduce the risk in question (
Blunden ,2013 ) , it’s crucial that Mr Sigcau understand fully what the insurance actually
covers by doing some research on the policies presented and then attempt to map that
to the business’s risk profile ( Blunden ,2013 ) ,lastly it’s essential that Mr Sigcau does
an evaluation on cost or by partnering up with Captive insurance companies ( “captive” )
as it’s basically formed to insure or reinsure the risks of its parent or getting involved
with third parties ( Blunden,2013 ) , which based on the case study Mr Sigcau is actually
considering transferring the risk to a third party in the future by taking out an additional
insurance policy of R1 million at a premium of R10,000 pm in order to be fully confident
that his business has adequate insurance coverage in place.

Question 2

In relation to people risk as an essential operational risk factor, it can be very clear that
people are very much participating in every aspect or action taken in any form of
business, by understanding the staff members, their behaviours and their decision
making process which will alternately lead to get a better idea of business risk as an
entire entity ( Khan,2019 ) . People risk is based on, referenced by the Basel Committee
which is mentioned as one of the key operational risk category of events states “ the risk
of loss resulting from inadequate or failed internal processes, people and systems or
from external events “ ( Khan, 2019 ). It’s important to note that people risk as a concept
plays a major role because it ultimately seeks to link together often disconnected types
of risk through their common element, that of course being the” people “ ( Khan, 2019 ) .

One of the recommended suggestions that Mr Sigcau can make usage of in order to
manage people risk in his business is by ensuring that the right people are selected at
the very beginning of the process ( Blunden,2013 ) , making certain that the staff
members have a clear understanding about their roles and how important their job is,
giving the staff opportunities to develop and learn for example introducing training
development programmes or incentives / workshops in developing their working skills
( Blunden, 2013 ) , providing them an reward or issuing out bonuses to staff members in
order to motivate and encourage better transparent performance criteria, Mr Sigcau
needs to give consistent feedback and have dialogues with staff members on the
regular ( Blunden , 2013 ) , and lastly Mr Sigcau must at all cost ensure that openness ,
transparency and active communication occurs meaning effective internal employee
communication must be present ( Blunden , 2013 ) .
Question 3

The difference between KPI and KRI is firstly KPI ( Key Performance Indicator ) deals
with the change in business objectives, whereas on the other hand KRI ( Key Risk
Indicator ) deals with the change in likelihood or impact that is linked to RCA ( Risk and
Control Assessment ) ( Blunden , 2013 ) .

Graphs

Figure 1.1

Height of swells during the high tide of the monthly spring tides during the previous year

Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct. Nov Dec
Height 1.80 1.78 1.84 1.85 2 2.1 2.30 2.43 2.44 1.84 1.80 1.77

Height of swells during the high tide of the

monthly spring tides during the previous year
3

2.5

1.5

0.5

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

As it can be seen in figure 1.1, that from the months Jan to Mar the trend seems to be
steady but then starts to increase at a slow pace from Apr reaching its peak at the
month Sep (2.44) , which then starts to slightly decline in the month Oct ( 1.84 )
remaining stable in Nov and then takes a slight dip in Dec .
Figure 1.2

Electricity outages per month

Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Outages 3 1 2 6 6 7 8 9 5 2 1 4

outages
10
9
8
7
6
5
4
3
2
1
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

As it can be seen in figure 1.2 the trend seems to have volatile rapid changes from
increase to a sharp decrease between the months of Jan and Mar , then a steady climb
begins the end of Mar to Apr , which then becomes stable in May . From the month Jun
a sharp increase emerges reaching its ultimate peak in Aug, which then takes a huge
dip / fall between the months Sep and Oct , then the in month Nov, the trend starts to
steadily rise once again heading to Dec .

Recommendations that one would suggest to Mr Sigcau in relation to mitigating the

risks , with regards to having poor communication among staff ,one would introduce
documented procedures and processes in order to create a more efficient and effective
communication and establish a defined communication channels in the business
(Blunden , 2013 ) , other mechanisms that can be put in place would be , on a regular
basis doing a review of individual needs in performance ( knowing the staff members
strengths and weaknesses ) and implementing staff training and mentoring schemes for
development of skills ( Blunden , 2013 ) .

Question 4

When defining operational risk as it applies to Mr Sigcau , one could state that
operational risk in a nutshell is about the lack of control and in addition establishing and
maintaining an effective and cost-effective control environment among all risks involved
( Blunden , 2013 ) . Two external factors that could negatively influence the well-being
of the caravan park would be firstly , the external crimes for example theft and burglary
that happen to be on the rise , and the other external factor would be the intense
competition that Mr Sigcau happens to be facing not only is it a well known popular
resort but it’s location isn’t far away ( 10 kilometres ) which somehow applies more
pressure on Mr Sigcau’s business reputation , based on the case study . Having the
knowledge that operational risk can only be effective when everyone embraces and be
integral to all business decisions made , other recommendations that could assist would
be for administrative workers / mangers to be open to exploring other forms of data as
operational risk can be seen as social , in other words information is better to
understand rather than numeric formats ( Blunden , 2013 ) .

Question 5

Calculate potential annual gross income

Formula : Gross Income = Gross revenue – Cost of goods sold

30.000 + 40.000 +21.000 + 14.000 + 80.000 + 10.000 + 20.000 – 120.000 – 2000 =

93.000

Therefore the annual gross income is R93.000

( Note that bank loan instalment was not included in the calculation for revenue)
Calculate potential profit and loss

Sales

Hardware = R 760 000

Total Sales= R 760 000

Cost of sales

Cost of goods sold = R 120 000 + R 2 000 = R 122 000

Therefore Gross Profit is R 760 000 – R 122 000 = R 638 000

Overheads

• Salaries
• Rent
• Electricity
• General expenses
• Insurance premium
• Bank loan instalment
• General maintenance
• Firewood

Total Overheads = R 417 000

Therefore Profit / loss is R 638 000 – R 417 000 = R 221 000

Based on all the information provided it can be noted that the business is feasible as
there is a profit of R 221 000 .

Question 6

Elaborating the roles and responsibilities of the role-players of the 2nd and 3rd lines of
defence in relation to risk management.
2nd Line Defence

Board of Directors

It should be noted that the board basically sets the stage / tone and culture, most
importantly has a vital oversight role ( Blunden, 2019 ) , given that, the following roles
and responsibilities that the board should perform are :

• To express fluently the risk and operational risk profile of the business ( Blunden
, 2013 )
• Approve the operational risk policy and operational risk procedures ( Blunden,
2013 )
• Make certain that both executives involved and other parties who deal with them
are very clear about ownership of risk ( Blunden ,2013 )
• At set times , provide an assessment of the effectiveness regarding it’s
operational risk governance practices and oversight ( Blunden , 2013 )
• Evaluate whether senior risk executives are qualified, fit and proper to manage
operational risk ( Blunden , 2013 )
• Provide oversight of operational risk, question and insist upon receiving
straightforward explanations from senior management ( Blunden , 2013 )
• Ensure that appropriate information is received and of good quality to support
and not hinder its risk oversight role ( Blunden , 2013 )
• On a regular basis, receive sufficient information to evaluate the performance of
senior management regarding operational risk ( Blunden , 2013 )
• Implementation of continues education programmes in operational risk and lastly
the most crucial is that at least one board member needs to have particular
responsibility for risk ( Blunden, 2013 )

3rd Line Defence

Audit Committee
 • Always review the business’s internal controls and operational risk
management systems ( Blunden , 2013 )
• Ensure that reports from management regarding effectiveness of operational
risk management systems any possible tests performed on them are received
( Blunden, 2013 )
• Make a review and approve any statements about operational risk
management contained in the business’s public financial reports
(Blunden,2013 ) .

Reference list

Blunden , T & Thirlwell , J . 2013 . Mastering operational risk: A practical guide to

understanding operational risk and how to manage it. 2nd edition Harlow: Pearson
Education.

Khan. M . Salman, 2019 . Know Your Risk ( KYR ) Consulting, Training & Advisory
Solution. www.Linkedin.com

RC Guide, Risk Transfer: A strategy to help protect your business. www.cna.com