Your CFO strongly advises the CEO to develop a system to evaluate enterprise and

Question

Your CFO strongly advises the CEO to develop a system to evaluate enterprise and financial risk. The reason for this is that there are two models that are inconsistent and he wants to "work on the same page" as your team. This is an initiative to streamline operations and reduce confusion. You have a few ideas, however you need more time to compile an analysis for review. You are not expected to be an expert, however the goal is to submit a proposal that you and your CFO can work on together to evolve into a policy that assists each department. In addition, you want a strong and financially viable health system. This ensures that you and your team have the resources needed to continue future operations. How you will evaluate "Risk Bearing" and "Risk Sharing" activities (page 160).

risk sharing system at CHAPTER 7 y a Labilty cosis in proport a ment's exposure It facititat e however, provide an centen tig n bsiniess can does not sub asaung the cosss io the umber of geting and departments to targe of from period to period, This s of ie hc t e focuso tion in risk management ser indivicdual loss experience is not s b The proper allocation of the ey the abibity to reward es. Fur nizations lies somewhe the two extremes. Success termare. cast'alecation system provides tng and ri ndorematian that can help a complex health goals for ng and risk bearing is depenc cost allocation, and system. The mo be er and ment phillosophy, of an organ o better meet the factor is that all ind ion, nerwork partners.create the risk must risk-bearing system. deoide how o best ucillze rish manage to adjust or improve plex health menr acmuties and how t sh management programs t needs af the oganaat custy and residens pate in risk management costs a requirement that tilts the scale BALANCING RISK BEARING AND RISK SHARING Other Goals right balance between risk bearing and risk Other goal sharing for the organization. A system thac is liability cost-all An effective cost-allecation system strikes the of a healthcare system bearing allocates aN medical lia- cake into accounr that some losses are matters of al's business department lor an unusual cata In addition, such a system ures thar are established by the organization Charging such kosses only to the department nizing and rewarding behavio safety, and identifying and departments that fail to co costs directly co their sources Tmis type risk and promotes pat of system, however, does not chance and may unfainy penalize the hospi- organization's risk manag s and whose behavior organization. Attributes of a Sound Cost- peovides bttle support for new business ven but have yet to develop any loss histo ry. Allocation S ystem thar generates them creates an imbalance in A comprehensive cost-allocation the finarcual resuts of that department from ally identifies an ene period to the next Smali departments, in particular, may be unduly penalized for a sin- information can be gle expensive catastrophic loss, and new or analyze and determ frequency and loss-se verity used by innovative businesses may have too little healthcare system's u cxperience to calculate their uti ment activities and mate lass potencial. This need for a risk-sharing allocation preserve their financial integrity along wit that of the arganization to which they belong subject stem's curten underscores the that might benefht from system to program

Explanation / Answer

An entirely Risk bearing system is logical from the point of view that the department which did not performed well should be penalised. But we also need to look at the fact that if there is new segment of business company enters, during initial days there would definately be losses and if we allocate that loss to that department then it will not be fair deal. Because in that way that business will get close before it get open and company can never be grow in future. So to deal with this situaton there should be Risk sharing concept be there which would share the losses of that department with others. But Only Risk sharing concept shall also not a good system because its hive off a deficiency of non performing department.
So while we make a policy which assist each department and the same time it should also tells to close the department which are consistently loss maker. Therefor we need a Balance system to allocate the cost. So In the proposal we can suggest the folllowing things for an effective policy making.

1. All company has three types of cost. 1. Fixed cost 2. Variable cost and 3. Semi variable cost. So we can allocate fixed cost equally/on the basis of department's revenue, between each deparment so that fixed i.e. permanent cost which has to incur by the company no matter what happens will be smartly taken care of.

2. All the variable cost shall be bear by the respective department. So If one department is performing well and selling high then its cost would also be high and vice versa.

3. For semi-variable cost we should discriminate fixed part and veriable part from this and then do the treatment with each of them as suggested in Point 1 & 2.

4. In case if there is any abnormal loss given by any of the department in any year it should be analysed from the perspective of reason then we would assign the loss. Generally it should be bear by the department which is generation it.

So each deparment should bear risk of the other department but not at the cost of lossing their profitability. So this would be the one of the evaluation of the Risk bearing and Risk sharing activities.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.