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RMI exam 2
Terms in this set (26)
1. Describe the purpose, application, and 2 characteristics (identify if it is a positive or negative characteristic) of the Checklists and Surveys Method. Identify 3 types of lists.
Purpose - systematically identify as many exposures perils and hazards using a list
Application - to use as a guide to gather info that results in exposure identification in an organized manner.
Characteristics - standardized, cannot cover all areas
Lists - asset lists, activeity lists, and industry lists
1. Describe the purpose, application, and 2 characteristics (identify if it is a positive or negative characteristic) of the Physical Inspection Method.
Purpose - to determine the observable exposures, perils and hazards by visiting organization sites
Application - may be performed by internal personnel or external providers
Characteristics - may find unreported hazards, time consuming and expensive
1. Describe the purpose, application, and 2 characteristics (identify if it is a positive or negative characteristic) of the Flowchart Method.
Purpose - to graphically depict the activities of a particular operation to identify exposures, perils and hazards
Application - allows users to visually analyze and identify exposures in the flow of processes of an organization
Characteristics - product analysis, site analysis
As a risk manager, category of loss, such as property damage, auto accident, is a specific type of loss data that should be collected at the time of loss. Identify four other specific types of loss data that should be collected at the time of loss and give an example of each.
Claimant - name
Hazard - lack of protection
Loss location - department
Cause - collision
A weather report is one method for Loss Data Collection. Identify 4 other methods for loss date collection
Completeness, such as, all events are included whether covered by insurance or not, is one characteristic of credible loss data. Provide the three other characteristics of credible loss data and provide an example of each.
Consistency - same policy year, fiscal year, calendar year
Integrity - prompt reporting and current data
Relevance - acquired operations
-Identify two ways that STATISTICAL CREDIBILITY can be ENHANCED:
Stable operations exist over the time period
Data is organized into useful formats
An Introduction of new product or services, Equipment, materials, or work process may impact loss data and analysis. Identify 3 other changes in exposures that may impact loss data and analysis.
Labor and management issues
Safety, incentives or rewards programs
Identify three internal and three external SOURCES OF LOSS DATA
Internal Sources - first aid logs, OSHA logs, accident reports
External Sources - industry associations, bureau of transportation statistics, national safety council
a. Identify three (3) other reasons why Jane should gather and analyze loss data.
a. Compare to benchmarks, assist with costs, identify trends in loss experience
a. Describe two ways that loss data analysis is used as a risk identification tool.
Examine frequency or severity of loss data, evaluate time intervals I the claims process
Provide a definition of accounting and finance.
Accounting- process of recording and classifying business transactions and reporting them on financial statement
Finance - a process of managing an organization's assets liabilities and cash flows to maximize shareholder wealth
identify 3 types of accounting systems that a risk manager may encounter,
Financial accounting under GAAP
be able to distinguish/list the correct property valuation methods with an example.
historical cost, -original purchase price of property
book value, - historical cost less accumulated depreciation
market value, - amount a willing buyer will give to a willing seller
replacement cost, -amount to replace a damaged piece of property with new property
actual cash value, -the replacement cost less an allowance for depreciation
economic value, - a future stream of income assigned to the property
and functional replacement cost. - cost to replace damaged property with material thats equivalent to damaged property
Identify four (4) reasons why financial statements are important to s risk manager's effectiveness.
Review asset valuation
Determine management tolerance to risk
Evaluate expansion plans
Determine risk assumed by contract
In addition to Current Assets, identify (3) three other components of a balance sheet and give one (1) example of each.
Current liabilities - accounts payable
Fixed assets - property
Long term liability - mortgages
You learn that one component of a balance sheet is Current Assets. Identify two (2) types of Current Assets that might appear on a firm's balance sheet.
cash, accounts receivables
You learn that one component of a balance sheet is Fixed Assets. Identify two (2) types of Fixed Assets that might appear on a firm's balance sheet.
Property, intangible assets
List 3 different areas/sources of cash inflows and outflows with one inflow and one outflow for each.
Operating activities - cash received from sales of goods, cash paid for raw materials
Investing activities - cash received from sale of loans, cash paid for loans made
Financing activities - cash received from sale of bond, cash paid for cash dividends
Briefly describe what a liquidity ratio measures and identify a key liquidity ratio, including its equation, that you would recommend using.
Liquidity ratio measures organization's ability to pay bills over the short term
Current ratio = current assets / current liabilities
Briefly describe what a debt ratio measures and identify a key debt ratio, including its equation, that you would recommend using.
Debt ratios measure the organization's ability to repay its creditors over the long term and assess the organization's financial leverage
Debt ratio = total debt / total assets
Identify a key profitability ratio, including its equation that you would recommend using.
Net profit margin = net income / sales
Identify a market ratio, including its equation that you would recommend using.
P/E ratio = market price per share of common stock / earnings per share
Identify three (3) sources of capital.
Long term debt
What is the least expensive source of capital and provides a characteristic of long-term debt?
Characteristic - low risk to investors
purpose and characteristics of using an expert in the risk identification process
the risk manager may not have knowledge in all areas of the organizations.
internal - operational
external - industry
can be expensive
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