Cape Agulhas is a small coastal town situated at the southern tip of Africa. It is a popular holiday area with several holiday homes and beach houses. The camping/caravan park, situated close to the sea (about 20 metres from the high-water mark), belongs to the local municipality. It has been neglected and failed to attract holidaymakers, so it is currently not a successful business enterprise.

Mr Sigcau, a local entrepreneur, negotiated with the municipality to hire the camping/caravan park so that he could upgrade the facilities and manage them as a profitable business. The municipality agreed to rent the park to Mr Sigcau for R30 000 per month. This amount includes the supply of fresh water but excludes electricity usage.

An analysis of the business revealed the following:

• The camping ground is divided into 100 stands, with a water tap and an electrical box on each stand.

• One ablution block is suitable for 100 people at a time (50 males and 50 females).

• One laundry area has ten heavy-duty washing machines and ten wash basins with washing lines.

• There is one access gate. The fencing around the park is not secure, and it allows easy access to the park without using the main entrance gate.

• Mr Sigcau employed the following staff: o Four administrative workers at a salary of R480 000 per annum (R10 000

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per staff member permonth). They are responsible forthe following tasks:

§coordinatingreservations

§ensuring the collection of payments and regular depositing of moniesreceived

§dealingwithenquiries

§managing and coordinating the park's mini-shop, which sellsfirewood for campfires

§coordinating the maintenance staff forthe maintenance of the ablution block and the camping grounds

ofive maintenance staff, employed at R7 000 per staffmember per month,comprising three cleaners and two groundskeepers

•A small function hallcan be rented out forfunctions/workshops and can host about 100 delegates at a time. Currently,the hall isused for about 30 weekends per year.It isrented out for R1 000 per weekend. The park has the potential to befullyoccupied during thirtyweekends (60 days) and the school holidays in March/April(20 days),and the summer holidays inDecember/January (30 days).

•Each stand is rented out for R500 per day. During off-peak seasons, the standsare 10% booked for an average of 200 days in the yearat a rate ofR300 perday.Each year, MrSigcaupurchases 1 200 bundles of firewood at R20 a bundle and sells each bundle to the campers for R50.

•A major concern forMrSigcauis the threat of fire. Being a coastal town, the wind speed can reach up to 50 knots,regarded as a gale force that could causean uncontrollable fire. Consequently, MrSigcauhas insured the parkagainst fire forR1m, at a monthly premium ofR10000.Another problem is the vulnerability ofcampers/caravaners to theft.Owing to the location of the camping ground, there isan increasing incidence of theft and burglary. However, a clause in the camp rules,which must be signed by each client/visitor,statesthatthe park’smanagement isnot responsible for any losses due to theft or natural causes. There is also a clausethat statesthat the park’s management is notliable for any losses suffered bycampers because of the unavailability ofthe park due to unforeseen natural causes(fires, floods, etc.). However, Mr Sigcauis responsible for payinghisthree-monthexpensesshouldtheparkfailto generate income. Therefore,MrSigcaushould

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ensure that he can cover this expense in the event of a potential loss of business. In this regard, he decided to take out an additional insurance policy of R1m at a premium of R10 000 pm. • Further analysis indicated that the average value of current assets on one occupied camping site at a time is R1 000 000. This amount includes, for example, a caravan, camping equipment and vehicles. Sometimes there is more than one vehicle parked on a camping site, which should be prohibited because it takes up unnecessary space and increases the risk of loss should a fire occur. Accordingly, when the park is fully occupied, the total value of the risk for clients is R100m. To cover these assets of campers against any losses, Mr Sigcau is considering "transferring" the risk to a 3rd party in the future by taking out an additional insurance policy of R1m at a premium of R10 000 pm. A summary of the monthly expenses is reflected in Table 1, and the total value of the assets is shown in Table 2 below.

Table 1: Monthly expenses #	Expenditure		Value
1	Average electricity bill		R120 000
2	Rent		R30 000
3	Salaries: Office administrators		R40 000
4	Salaries: Cleaning staff		R21 000
5	Salaries: Groundskeepers		R14 000
6	General maintenance of equipment and vehicles		R80 000
7	Bank loan installment		R80 000
8	General expenses		R10 000
9	Purchasing of firewood (100 bundles @ R20)		R2 000
10	Insurance premiums against loss of business, fire and theft		R20 000
Total per month		R417 000

Question:

Using key risk indicators (KRIs) is crucial to operational risk management. Briefly distinguish between a key performance indicator and a key risk indicator. Using the information in the case study, illustrate through graphs – how the risk of system downtime and the height of the swells can be monitored. Explain the current trends and make recommendations to mitigate the risks.

Answer rating: 100% (QA)

Key Performance Indicator KPI and Key Risk Indicator KRI are both important metrics used in business management but they serve different purposes 1 Key Performance Indicator KPI KPIs are used to measu... View the full answer