Imagine you own a restaurant and are considering adding a raw bar to raise new r
ID: 393275 • Letter: I
Question
Imagine you own a restaurant and are considering adding a raw bar to raise new revenue.
However, you are worried about the additional risk of food poisoning due to either contami-
nation or improper refrigeration that it brings to your operation. List a feasible example of
each of the following risk control techniques that you may implement and tell whether this
reduces frequency, severity, or both. Defend your selection: Reactive Avoidance, Proactive
Avoidance, Loss Prevention, Pre-loss Loss Reduction, Post-loss Loss Reduction, Separation,
Duplication, Diversi cation.
Explanation / Answer
Answer: If we have to choose one of the following risk control techniques for our restaurant:
For eg- Nokia company had taken the mobile charger back because there was a risk of electric shock.
We would not prefer this technique for our restaurant because with this technique we can avoid the risk of claim after we implement this technique once the loss occur but we will be accountable for the loss before the implementation of this technique.
2.Proactive avoidance:( It reduces the loss frequency): This technique is used before the loss exposure occur.
For eg: reliance company has changed its decision to enter in the pharmaceutical line because they wanted to avoid the loss from the situation where competitors will file a suit for costly products.
we can consider this technique for our restaurant after analysis the cost of loss if we add a raw bar and revenue from this new business if the revalue will be more we will not prefer this technique but if the cost of the liability of loss from this business is more we will definitely implement this technique because this technique does not only reduce the frequency but totally eliminate it.
3. pre-loss loss reduction - ( it reduces loss frequency)-Use those activities which attempt to reduce the frequency of loss to eliminate the loss causing events but still indulge in loss causing event.
for Eg: all preventive measure such as police patrolling to reduce the risk of theft or crime or Zero tolerance policy of alcohol while driving to avoid the accidents.
If we implement this technique for our restaurant by introducing some preventive measure while adding a raw bar but we have to consider that with this technique we cannot totally avoid the risk because we still going to engage in the activity but can reduce the cost of loss.so, we do not reccomend this technique.
4.Post-loss Reduction:(it reduces loss severity) In this technique, attempts to reduce the intensity of loss if occurred.
for eg: Installation of airbags in car, company can not prevent the occurrence of accident but loss can be reduced.
we don't recommend this technique because we can not avoid the risk of loss occurrence.
5.Separation-( It reduces the loss severity, increases the loss frequency and helps to predict losses): This technique attempt to reduce the probability of loss that is linked with some risk.
for eg: company plan in such a way, if some blast or explosion occurs there should be only few person who will get affected.
we will not prefer this method as it increases the frequency of the loss.
6.Duplication: (it reduces the loss severity, and helps to predict losses):this technique used to reduce the risk with the use of some backup if original item has got destroyed.
for eg- Disaster recovery system of any company in case of emergency.
This technique can be considered for our restaurant because it reduced the risk of huge loss and risks are always predictable.In our case risk are predictable so we can use this technique to reduce the severity of loss.
7.Diversification-(it reduces loss severity and helps in predicting losses) diversification of business or activity to balance the impact of loss.
for eg: Reliance company has allocated its resources to diversify its business in various markets and created the different business lines.It balances the loss from one business with the revenue from other.
This would not prefer this technique because right know we are considering to add one business, we can not plan for many at once but for long term it is a good option.
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