QUESTION

ProjecTech Consulting Limited $($PTC$)$ owns a high$-$rise office

building with glass cladding $($a protective covering$)$ and adjacent

factory premises, and it operates from these factory premises.

PTC refurbishes and sells electric motors. Its processes include

stripping down old motors, sandblasting motor casings, armature

winding, varnishing, spray$-$painting and assembly.

In order to write a risk management statement, the risk manager

will carry out a physical inspection to familiarise him$/$herself

with the factory layout and processes. The risk management

process of identification will consist of listing all manufacturing

processes using a checklist to ensure that s$/$he asks all the

relevant questions. The checklist will also include questions

such as what flammable liquids are used, in what quantities, and

where are they stored? During the identification step of the risk

management process for PTC$,$ the risk manager identifies the

following insurable risks:

The next step in the risk management process is to measure the

potential risks, or place a value on the impact of the risk. The

measurement process for PTC reveals the following

information:

Fire damage to the office building: The low potential for fire in

the office building is further improved by the construction

specification that includes fire resistant doors on stairways and

the installation of a sprinkler system. In the event of fire,

estimates suggest that the damage would be limited to $60\%$ of

the building. However, this exercise identified the possibility of

damage through accidental activation of the sprinkler system.

This risk must be added to the list.

Sprinkler leakage: In the case of leakage, estimates suggest

that the damage would be $15\%$ of the insured contents value of

the office building.

Fire damage to factory premises: The factory premises contain

potential sources of ignition and inflammable material that could

feed a fire. Open flames are used to strip old motors. Therefore,

the potential for fire damage is high and likely to be $80\%$ of the

total value of the contents and building. Fire would also damage

the combustible components of the stock of refurbished and new

motors.

Storm damage: The potential loss from storm damage is

estimated at $25\%$ of the value of the factory premises, and $20\%$

of the value of the office building. The potential damage to the

glass cladding must be separately evaluated. The impact of hail

damage could be $25\%$ of the total cost of glass replacement,

representing one total side of the building. Statistics also show

that, on average, five panes of glass break accidentally every

year. This equates to $K4,000$ in total, at a cost of K $800$ per pane.

Riot and strike damage: The potential loss from riot and strike

damage is estimated at $10\%$ of the total value of the factory

premises.

$.$ Theft: In the case of theft the estimate loss, per event, is

$K50,000$ for the factory and $K10,000$ for the office.

Product liability: The refurbished products could attract

product liability claims against PTC if PTC$\text{'}$s negligence caused

damage to property where the motors are installed. The

estimated loss is K $2$ million, inclusive of legal fees.

Business interruption: A fire could seriously impact on the

ability of the business to continue. In this event, competitors

would move into PTC$\text{'}$s market if the company could not

provide its services for an extended period. It is estimated that

PTC could be affected for at least six months after a serious fire.

You are required to draft a risk management plan to deal with

the following risks that have been identified:

$($a$)$ fire and explosion;

$(6$ Marks$)$

$($b$)$ business interruption; and

Marks$)$

$($c$)$ product liability.

Your risk management plan should be supported with

calculations and diagrams where possible to justify the plans and

decisions made.