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GNDU Question Paper-2023
Bachelor of Business Administration
BBA 5
th
Semester
INSURANCE AND RISK MANAGEMENT
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Discuss the liability of insurers on a life insurance policy in case of suicide of the
assured.
2. Write short notes on the following:
(a) Annuities
(b) Surrender Value
SECTION-B
3. Elaborate on the claim process of marine insurance.
4. What is the meaning of fire in a fire-policy? Discuss the losses covered and not covered
by a fire policy.
SECTION-C
5. What are the different methods involved in risk management ?
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6. Define the following:
(a) Surveyor
(b) Corporate risk.
SECTION-D
7. Discuss in brief the various techniques used to identify and assess the potential risk to
an organization. Also explain the qualitative techniques with relevant examples.
8. Discuss the techniques used for gathering data for risk management.
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GNDU Answer Paper-2023
Bachelor of Business Administration
BBA 5
th
Semester
INSURANCE AND RISK MANAGEMENT
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Discuss the liability of insurers on a life insurance policy in case of suicide of the
assured.
Ans: The Story of a Promise and a Dilemma
Imagine this:
A young man named Rohan, aged 28, buys a life insurance policy. Like many of us, he thinks
about the future—his parents, his wife, and his little daughter. The idea behind life
insurance is simple: if something unfortunate happens to him, his family should not be left
helpless. That is the promise insurance companies make.
But then, a tragic twist happens. One year after taking the policy, Rohan, overwhelmed by
depression, takes his own life. His family, shattered by grief, turns to the insurance
company, hoping to receive the sum assured. But here comes the big question: Will the
insurer pay if the assured has died by suicide?
This is not just Rohan’s story. It is a situation that law, ethics, and business have debated for
years. To understand the answer, let’s unpack this issue in a simple way.
The Foundation of Life Insurance
At its heart, a life insurance policy is a contract between two parties:
• The insured (the person whose life is covered)
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• The insurer (the company that promises to pay a certain sum upon death of the
insured)
The contract is based on a principle called “utmost good faith”. Both sides must be honest:
the insured must disclose health conditions, habits, and risks, while the insurer promises to
stand by the family at the time of loss.
But, when death occurs by suicide, this balance becomes tricky. Why? Because if suicide
were openly covered from day one, there’s a risk that someone might deliberately misuse
the policy—buy insurance today and take their life tomorrow, leaving the insurer to bear an
intentional loss. That would go against the spirit of insurance.
The Historical View
In earlier times, most insurance policies had a very strict rule:
If the insured died by suicide at any time, the insurer would pay nothing.
The reasoning was straightforward: suicide was considered both a moral and legal wrong.
Insurers feared fraud, where a person in financial distress might take insurance and then
end life to give money to family.
But as societies grew more compassionate and began to understand mental health, the law
and insurance practices also evolved.
The Modern Legal Position
In India, the Insurance Act, 1938 (with amendments) gives clarity on this issue. Today, most
life insurance policies have a “suicide clause.”
Here is the simplified version of how it works:
1. If suicide happens within 12 months of taking the policy → The insurer does not pay
the full sum assured. However, they usually refund 80% of the premium paid (after
deducting charges). This prevents misuse by people who might think of immediate
self-harm after buying insurance.
2. If suicide happens after 12 months of policy commencement (or revival) → The
insurer is liable to pay the full sum assured, just like in any other natural death.
This shows a balance: it protects insurers from fraud in the initial period but also protects
the genuine needs of families in the long run.
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An Engaging Example
Let’s go back to Rohan’s story.
• Suppose he bought his policy in January 2022.
• If he, unfortunately, died by suicide in October 2022 (within 9 months), the insurer
would not pay the full insurance money. Instead, they might refund 80% of the
premiums paid till date. His family would not get the full benefit.
But, if Rohan had died in, say, March 2023 (after 14 months), then the insurer would pay the
full sum assured. His family would get the financial security he had planned for them.
This makes the rule very clear: the timing of suicide in relation to the policy commencement
decides liability.
Why This Rule Makes Sense
You may wonder—why exactly 12 months? Why not 6 months or 2 years?
The answer lies in finding a practical middle ground. One year is considered a reasonable
“cooling-off period.” If someone has bought insurance with the intention of immediate self-
harm, they would not benefit. But if someone genuinely wanted insurance for family and
after years, due to depression, stress, or life circumstances, took their own life, their family
would not be punished.
Thus, the rule balances two objectives:
1. Prevent fraud and misuse.
2. Support families of genuine policyholders.
Judicial Interpretations
Courts have also dealt with such cases. Judges often emphasize that insurance is a contract,
and both sides are bound by its terms. If the contract clearly has a suicide clause, it will be
enforced as it is written.
However, in many cases, courts have also looked at fairness. For example, if the insurer tries
to avoid payment even after the 12-month period, courts have ruled in favor of the
policyholder’s family.
Human Angle: Understanding Suicide
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While we discuss liability and clauses, it’s important to also acknowledge the human side.
Suicide is rarely a matter of choice in the ordinary sense—it is often the result of deep
depression, trauma, or unbearable stress. That’s why modern laws and policies treat it with
compassion, rather than punishment.
By allowing payment after one year, insurers indirectly acknowledge mental health struggles
while still safeguarding their business interests.
Key Points to Remember (For Exam Writing)
1. Life insurance is a contract between insured and insurer.
2. Suicide complicates liability because of potential misuse.
3. Earlier, insurers denied all claims arising from suicide.
4. Under modern law and practice (Insurance Act, 1938, as amended):
o Suicide within 12 months → no full claim, only refund of 80% premium.
o Suicide after 12 months → insurer must pay full sum assured.
5. The rule balances fraud prevention and compassionate support.
6. Judicial interpretations uphold policy terms but ensure fairness.
Wrapping it Up like a Story
So, when we return to Rohan’s family, the insurer’s liability depends on when he died by
suicide in relation to the policy start date. If it was within 12 months, only part of the
premium comes back. If it was after 12 months, his family gets the full financial support he
intended for them.
In essence, the insurer’s liability is limited in the first year but absolute thereafter.
And that’s the heart of the matter: life insurance, even in the case of suicide, is ultimately
about balancing trust, fairness, and protection—ensuring families are not abandoned, while
also preventing the system from being misused.
2. Write short notes on the following:
(a) Annuities
(b) Surrender Value
Ans: Short Notes on (a) Annuities and (b) Surrender Value
A Different Beginning…
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Imagine for a moment that life is a long train journey. You have different stages ahead—
your student life, your working life, your family responsibilities, and then your old age when
you want to sit peacefully and enjoy the scenery outside the window without worrying
about money.
But here’s the twist: the train doesn’t give free meals forever. If you want to enjoy your
journey without hunger or worry, you must prepare snacks in advance or buy a ticket that
includes meals. In the world of finance and insurance, this idea of securing your meals in
advance is what we call Annuities, while the ability to leave the train midway and still get
back some value of your ticket is called Surrender Value.
Let’s now break both these concepts into simple, relatable stories.
(a) Annuities – Your Pension Friend for Life
Think of Annuity as a magic tap. This tap will give you a steady flow of water (money), not in
one go, but slowly, regularly—maybe every month, every 3 months, or every year. But
here’s the catch: before this tap can work, you must first fill the water tank. That tank is
filled when you deposit a big lump sum amount with an insurance company or when you
regularly contribute over a number of years.
Once you have filled the tank, the company opens the tap for you after retirement, and you
get a fixed amount of money at regular intervals. This is called an Annuity.
Simple definition: An annuity is a contract with an insurance company where you pay
money (either at once or over time), and in return, you get a guaranteed regular income for
a specific period or for your lifetime.
Features of Annuities:
1. Steady Income – They provide regular payments, just like your salary, but during
retirement.
2. Security – They help you avoid the fear of “what if I run out of money in old age.”
3. Flexibility – You can choose different types of annuities. For example:
o Immediate Annuity – You deposit money today, and the company starts
giving you income immediately.
o Deferred Annuity – You invest for some years, and the income starts later,
usually after retirement.
4. Lifetime or Fixed Years – Some annuities give you income for life, while others pay
for, say, 10, 15, or 20 years.
Story Example:
Think of Mr. Sharma, who worked as a teacher for 35 years. When he retired, he had some
savings but worried, “What if I live longer than my savings?” He invested his retirement fund
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into an annuity. Now, every month, just like a salary, the insurance company sends him a
fixed amount. Even if Mr. Sharma lives till 95, he will still get that money. That’s the power
of an annuity—it takes away the fear of running out of funds.
So, in simple words, an annuity is like planting a money tree during your working years,
and in retirement, you sit under its shade and enjoy the fruits one by one instead of
cutting the whole tree at once.
(b) Surrender Value – When You Change Your Mind
Now, let’s move to another situation. Suppose you bought a long train ticket that promised
to take you to your destination in 20 years with comfortable facilities. But after 10 years,
you feel you don’t want to continue on this train. Maybe you found another faster train, or
maybe your circumstances changed. You don’t want to throw away the ticket completely,
right? You will at least go to the counter and ask, “Can I get some refund for the unused
journey?”
That refund which the insurance company gives when you discontinue a policy before its
maturity is called the Surrender Value.
Simple definition: Surrender Value is the amount an insurance company pays you if you
decide to terminate your policy before the maturity period.
Features of Surrender Value:
1. Available Only After a Minimum Period – Most policies allow surrender value only
after you have paid premiums for at least 2–3 years.
2. Not the Full Premium Back – You don’t get back all your money, because the
company has already used some part for expenses, insurance cover, and
commissions.
3. Two Types of Values –
o Guaranteed Surrender Value – A minimum value promised in the policy.
o Special Surrender Value – A higher value depending on how long the policy
has run and how much bonus has accumulated.
4. Reduces Financial Loss – Instead of losing all your money, you at least recover a part
of it.
Story Example:
Imagine Ms. Kavita bought a 20-year endowment insurance policy. She paid premiums
regularly for 5 years, but then her financial situation changed. She could no longer afford to
continue. If she cancels the policy now, the company won’t return all her money. Instead,
they calculate her surrender value—which could be, say, 30–40% of the premiums she paid
plus some bonus. Although it is less than what she paid, it is better than getting nothing at
all.
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So, surrender value is like saying goodbye to your plan early but still walking away with
some money in your pocket.
Comparing Both: Annuities vs. Surrender Value
• Annuities are about enjoying the benefits of your savings in the future in the form of
a steady income.
• Surrender Value is about changing your decision midway and still getting back some
part of what you had invested.
One focuses on regular income, the other on early exit compensation.
Why Both Concepts Matter in Real Life
Life is unpredictable. Sometimes you want security for the future (that’s where annuities
help), and sometimes you need flexibility to withdraw early (that’s where surrender value
helps). Insurance and financial planning are not just about money, but about balancing
these two sides of life—commitment and flexibility.
Think of them like two important life lessons:
• Annuity teaches patience and planning—“Save today, enjoy tomorrow.”
• Surrender Value teaches practicality—“If life changes, you can still salvage
something.”
Conclusion
To conclude in a human way: money matters can often sound complicated, filled with heavy
terms. But if you see them as part of your own journey, they start making sense. An annuity
is your faithful friend in old age, making sure you never feel financially abandoned.
Surrender value is your safety net, ensuring that even if you cannot continue with a plan,
you don’t walk away empty-handed.
So, next time you hear these terms, don’t think of them as dull exam points. Picture the
train journey—your annuity is the meal plan that keeps you fed till the end, and your
surrender value is the partial refund you get if you step down before the last station. And
that’s how insurance tries to match itself with real life—by protecting, planning, and
preparing you for the journey ahead.
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SECTION-B
3. Elaborate on the claim process of marine insurance.
Ans: The Claim Process of Marine Insurance – Explained Like a Story
Imagine this: You are a young exporter named Arjun, living in Mumbai. After months of
effort, you finally ship a container full of expensive textiles to London. You are excited
because this deal could open new doors for your business. But, as the ship sails across the
Arabian Sea and into rough waters, disaster strikes. Due to a violent storm, part of the cargo
gets damaged by seawater.
Your heart sinks when you hear the news. But then you remember – thankfully, you had
taken marine insurance. Now the next big question arises: How do I get compensation for
my loss?
This is where the claim process of marine insurance comes in. Let us walk step by step
through this journey with Arjun, in the simplest way possible.
Step 1: Noticing the Loss and Informing the Insurer
The very first thing in the claim process is intimation. As soon as Arjun learns that his cargo
has been damaged, he cannot waste time. He immediately informs the insurance company
about the incident.
Think of it like reporting a theft at your home. The earlier you inform the police, the better
your chances of recovery. Similarly, in marine insurance, the insurer must be informed
immediately so they can begin their investigation.
Step 2: Minimizing the Loss
Here’s something interesting: Insurance is not just about sitting back and waiting for the
insurer to pay. The insured (Arjun, in our story) also has a duty.
For example, when he hears that the cargo is wet with seawater, he instructs his agent at
the port to move the containers to a dry place and prevent further damage.
This principle is called "Duty of the Assured to Minimize the Loss." Insurance companies
expect that the insured will act responsibly and not leave everything to fate.
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Step 3: Gathering Evidence and Documents
Now comes the paperwork. Without proper proof, no insurer will pay a claim.
Arjun needs to collect the following documents:
1. Insurance Policy Document – Proof that he actually purchased insurance.
2. Bill of Lading – The shipping company’s receipt of goods shipped.
3. Commercial Invoice & Packing List – To show the value of goods.
4. Survey Report – An independent surveyor inspects the damaged cargo and reports
the extent of loss.
5. Notice of Protest (if needed) – If the loss was due to the negligence of the ship’s
captain or crew, a legal protest is filed.
6. Claim Form – Provided by the insurer, where Arjun details the incident.
Just like a student needs hall ticket, ID card, and answer sheets for exams, an insured needs
these documents to prove his claim.
Step 4: Appointment of a Surveyor
Insurance companies do not simply believe stories. They rely on experts called surveyors.
In Arjun’s case, the insurance company appoints a surveyor who goes to the port, inspects
the wet textiles, measures the extent of damage, takes photographs, and prepares a survey
report.
This step is like when a teacher checks your homework notebook before giving marks. Only
after proper verification can the insurer decide how much to pay.
Step 5: Submission of Claim
Once all documents are ready, Arjun officially submits the claim to the insurer. This is like
applying for a refund – unless you make a formal request, you cannot expect money to
come automatically.
In his claim form, he clearly mentions:
• The policy number
• Details of shipment
• Nature of damage
• Estimated amount of loss
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Step 6: Assessment by the Insurer
Now the ball is in the insurer’s court. They carefully check:
• Is the policy valid?
• Was the premium paid?
• Is the type of loss covered under the policy?
• Are the documents complete?
• Does the surveyor’s report confirm the claim?
This stage is like an examiner checking whether your answer sheet is genuine, neat, and
complete before awarding marks.
Step 7: Settlement of Claim
Finally, the insurer comes to a decision. If everything is in order, they calculate the
compensation and make payment to Arjun.
There are two types of settlements:
1. Total Loss – If the cargo is completely destroyed (like if the entire ship sinks).
2. Partial Loss – If only part of the cargo is damaged (like Arjun’s textiles getting wet).
In Arjun’s case, since it was a partial loss, the insurer pays him compensation for the value
of goods damaged by seawater.
This payment helps Arjun recover financially and continue his business without being
completely ruined.
Step 8: Subrogation and Recovery (Behind the Scenes)
Here’s a hidden part of the story most people don’t notice. After paying Arjun, the insurer
now has the right to recover that money from any responsible third party.
For example, if the damage happened because the shipping company was negligent, the
insurer can sue them. This principle is called Subrogation – once the insurer pays you, they
step into your shoes to recover the loss from others if possible.
Why This Claim Process is Important
The claim process may sound lengthy, but it is the backbone of trust in marine insurance.
Without a clear process:
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• Exporters like Arjun would fear sending goods abroad.
• Importers would hesitate to order expensive items.
• International trade itself would slow down.
Marine insurance acts like a safety net. It ensures that even if storms, accidents, or piracy
occur, business people do not collapse financially.
A Real-World Analogy
Think of marine insurance claims like ordering food online.
• You place an order (take a policy).
• If the food is delivered cold or spilled, you inform the app immediately (intimation).
• You share photos and order ID (documents & evidence).
• The company investigates by checking the restaurant or delivery partner (surveyor’s
role).
• If found genuine, they refund or replace the food (settlement).
Just as food delivery apps build trust with this process, marine insurance builds confidence
in global trade.
Conclusion
The claim process of marine insurance, though detailed, is nothing but a structured journey
from reporting the loss to receiving compensation.
To recap through Arjun’s story, the steps are:
1. Inform the insurer quickly.
2. Try to minimize further loss.
3. Collect and submit all necessary documents.
4. Allow the surveyor to inspect.
5. File the claim officially.
6. Let the insurer verify everything.
7. Receive settlement (total or partial).
8. Understand subrogation in the background.
When seen this way, the claim process is not just a legal formality – it is a lifeline for traders,
exporters, and importers who keep the wheels of international commerce running.
So, the next time you see a ship sailing across the ocean, remember: behind that cargo lies
not just goods, but also the invisible shield of marine insurance, ready to protect against
life’s unexpected storms.
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4. What is the meaning of fire in a fire-policy? Discuss the losses covered and not covered
by a fire policy.
Ans: Imagine this:
One night, a shopkeeper named Ramesh locks up his garment shop and goes home, satisfied
that business has been good. But at midnight, a short circuit in one of the old wires in his
shop sparks a fire. Within minutes, flames spread, destroying shelves of clothes, furniture,
and even the cash counter. By morning, what once looked like a lively store is reduced to
ashes.
Now, here’s the big question—who will bear the loss? Ramesh cannot blame electricity or
fire itself. But this is exactly where fire insurance comes to the rescue.
When we talk about a “fire policy,” it is essentially an insurance contract where the insurer
promises to compensate the insured for losses caused due to “fire.” But in law and
insurance, the word fire doesn’t simply mean any flame—it has a very specific meaning, and
this makes the subject both interesting and important.
Meaning of Fire in a Fire-Policy
To understand it simply, in the language of fire insurance, “fire” means an actual ignition or
burning, which is accidental, fortuitous, and not intentional.
This definition has three key parts:
1. Actual Ignition – Something must actually catch fire. Mere overheating, charring, or
smoke damage without ignition is not considered fire. For example, if your laptop
gets spoiled because it overheated, it won’t be covered. But if it actually catches fire,
then it will.
2. Accidental and Fortuitous – The fire must be unexpected and accidental, not
planned or deliberate. If the insured himself sets fire to his house or shop to claim
insurance money, it is fraud, not fire in insurance terms.
3. Hostile Fire (Not Friendly Fire) – There’s also an important distinction between a
friendly fire and a hostile fire.
o Friendly fire is one that is controlled and contained, like fire burning in a gas
stove or a fireplace. If damage happens within its intended use—say, your
utensils blacken due to stove flames—insurance won’t pay.
o Hostile fire is when flames escape beyond their intended limits and cause
destruction. For example, if the same stove fire spreads to the kitchen and
burns the curtains, it becomes hostile fire and is covered.
So, in short, for fire insurance, the “fire” must be real, accidental, and hostile.
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Losses Covered by a Fire Policy
Let’s now think of Ramesh again. When his shop caught fire, what types of losses would his
fire policy cover? Here’s a detailed explanation in simple terms.
1. Loss of Property or Goods –
This is the most obvious. Fire insurance covers damage to buildings, machinery,
stock, furniture, or any property specified in the policy. In Ramesh’s case, his shelves,
clothes, counters, and even the building (if insured) would be covered.
2. Damage due to Lightning or Explosion –
If fire is caused by lightning striking the building or an explosion inside the shop, the
policy covers it. For example, if a gas cylinder explodes and spreads fire, insurance
compensates.
3. Fire Spread due to Accidental Causes –
Fire caused by short circuits, bursting of boilers, spontaneous combustion, or
accidents is also covered, provided it was not deliberate.
4. Damage due to Firefighting Efforts –
Sometimes, water used to extinguish the fire or chemicals sprayed by firefighters
may damage the property. Even this consequential damage is covered.
5. Removal of Debris –
After the fire, clearing the debris costs money. Many fire policies cover the expenses
of removing debris.
6. Alternative Accommodation (in some policies) –
If the insured house is destroyed by fire, some policies provide money for temporary
alternative accommodation until the house is rebuilt.
In essence, a fire policy aims to restore the insured to the same financial position he was in
before the fire occurred, without letting him make a profit out of it.
Losses Not Covered by a Fire Policy
Now, insurance companies are not charities. They clearly exclude certain risks from fire
policies to prevent misuse or avoid uncontrollable risks. Let’s look at these exclusions in a
simple way.
1. Willful or Deliberate Fire –
If the insured himself sets fire intentionally, or if there is fraud, the insurance
company is not liable. For example, a business owner who burns his warehouse to
escape losses and claim insurance won’t get a penny.
2. War, Civil Commotion, or Riots –
Losses caused due to war, invasion, enemy attack, or even large-scale riots are
excluded because these are massive risks that insurers cannot control.
3. Theft during Fire –
Suppose during a fire, thieves take advantage and steal goods from the shop. That
loss is not covered under fire insurance, because it is not caused by fire but by theft.
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4. Spontaneous Combustion without Flames –
Some goods like coal, hay, or chemicals may generate heat and self-destruct without
actual ignition. Since no actual fire occurred, such losses are excluded unless
specifically covered by a separate clause.
5. Nuclear Risks –
Any damage caused by nuclear reactions, radiation, or radioactive contamination is
not covered. These risks are far too catastrophic for insurers to handle.
6. Loss due to Normal Heating or Fermentation –
If goods like fruits, alcohol, or chemicals spoil due to natural heating, fermentation,
or evaporation, it is not fire. Hence, it’s excluded.
7. Minor Damage without Fire –
Discoloration, smoke marks, or damage caused by overheating (without ignition) is
not considered fire in the insurance sense.
So, while a fire policy is very helpful, it is not all-inclusive. Insurers balance between
protecting the insured and preventing unfair claims.
Significance of Fire Insurance
Let’s step back and ask: Why does this matter so much?
In a country like India, where small businesses, shops, factories, and even households are
vulnerable to sudden fires due to electrical faults, careless handling of gas, or accidents, a
fire policy gives people confidence and security. It ensures that one unfortunate night does
not ruin years of hard work.
For business owners, it’s not just about replacing goods but also about rebuilding trust and
stability. For households, it’s about having a financial shield during emergencies.
Conclusion
To conclude, fire in a fire policy does not mean just any flame—it specifically refers to an
accidental, fortuitous, and hostile ignition that causes damage. Losses such as damage to
property, goods, or consequences of firefighting are covered, while deliberate acts, war,
theft, nuclear risks, and damages without actual ignition are excluded.
If we return to Ramesh’s story, his fire insurance policy would help him rebuild his shop, buy
new stock, and stand back on his feet. Without it, one night of accident would have
destroyed not just his property but also his livelihood.
That is the beauty of fire insurance—it doesn’t stop the flames, but it makes sure the
insured does not burn along with them, financially.
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SECTION-C
5. What are the different methods involved in risk management ?
Ans: What are the Different Methods Involved in Risk Management?
Imagine you are the captain of a big ship sailing across the ocean. The water is calm today,
but you know the sea can never be trusted. Sometimes storms appear suddenly, sometimes
pirates attack, and sometimes the ship itself may develop leaks. Now, as the captain, what
would you do? Would you sit back and hope that the sea remains kind forever? Of course
not! You would prepare yourself, your crew, and your ship in advance so that even if
problems arise, you can handle them without sinking.
This is exactly what risk management is all about. Life, business, projects—everything is like
that sea voyage. Risks are those storms and pirates that can come at any time. Risk
management is simply the smart way of identifying, analyzing, and dealing with risks
before they damage your goals.
Now, let’s dive into the heart of the topic: the different methods of risk management. To
make it fun and simple, let’s think of them as the different tools in the captain’s treasure
chest. Each method has a purpose, and a wise leader knows when and how to use them.
1. Risk Avoidance – Staying Away from the Storm
Suppose the weather forecast says there is a 90% chance of a cyclone in the northern sea.
As a smart captain, you might decide not to sail in that direction at all. By doing this, you are
avoiding the risk altogether.
In risk management terms, avoidance means changing your plan so that the risk doesn’t
even arise. For example:
• A company might avoid investing in a very unstable country because political risks
are too high.
• A student might avoid leaving exam preparation until the last night because the risk
of forgetting everything is huge.
This method is like saying, “Why invite trouble when you can simply not go near it?”
However, avoidance isn’t always possible. If you never set sail, you’ll never reach new lands.
2. Risk Reduction (or Risk Mitigation) – Making the Storm Less Dangerous
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Sometimes, you cannot avoid the storm, but you can prepare to reduce its impact. For
example, as a ship captain, you might strengthen the sails, train your crew, and keep extra
lifeboats. This way, even if the storm hits, the damage will be less.
In real life:
• Companies install fire alarms, sprinklers, and safety drills to reduce the damage of
fire.
• Students revise regularly instead of one night before the exam to reduce the risk of
forgetting.
• Builders use strong materials to reduce the risk of building collapse during
earthquakes.
This is one of the most widely used methods, because complete avoidance is rare, but
reduction is always possible.
3. Risk Sharing (or Risk Transfer) – Passing the Risk to Someone Else
Now imagine pirates might attack your ship. Instead of facing them alone, you hire a group
of strong warriors who will fight on your behalf. In return, you pay them some gold. That’s
risk transfer.
The most common real-life example is insurance.
• When you buy car insurance, you transfer the financial risk of accidents to the
insurance company.
• Businesses often outsource certain risky operations to other companies better
equipped to handle them.
• Even in daily life, when you hire an expert to do electrical repairs instead of
experimenting yourself, you are transferring risk.
Here, the risk still exists, but the burden is passed on to someone else who is more capable
of managing it.
4. Risk Retention (or Acceptance) – Living with the Risk
Sometimes, the captain knows that a storm might come, but it’s very small and won’t cause
much trouble. In such a case, he may decide not to waste time and money preparing too
much, but instead accept the risk and move forward.
Risk retention means you simply acknowledge the risk and keep it with yourself because:
1. The cost of avoiding or reducing it is higher than the damage it might cause.
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2. The risk is too small or too rare.
Examples:
• A shopkeeper may not insure every single pen in his shop, because the loss is too
minor.
• People sometimes accept the risk of getting a minor cold instead of avoiding all
outdoor activities.
• Businesses often retain small financial risks rather than buying costly insurance for
everything.
It’s like saying, “Yes, I know the risk exists, but I can handle it if it happens.”
5. Risk Monitoring and Review – Keeping an Eye on the Sea
Even after you have chosen your method—avoiding, reducing, sharing, or retaining—the job
of a captain is not over. The sea can change anytime, so he must keep checking the
weather, scanning the horizon, and watching the ship.
This is called risk monitoring and review. In business or projects, managers regularly review
risks because new ones may appear and old ones may disappear. Monitoring ensures that
you are not caught off-guard.
For example:
• A software company keeps monitoring for new cyber threats.
• A bank reviews its customers’ credit risks frequently.
• Even students keep track of their progress before exams to see if new challenges
arise.
Monitoring is not a separate method but a continuous step that supports all the others.
Bringing it All Together – A Real-Life Example
Let’s imagine a company launching a new smartphone. Here’s how they might use all these
methods:
1. Avoidance: They avoid launching in a country where regulations are too
unpredictable.
2. Reduction: They test the phone’s battery heavily to reduce the risk of overheating.
3. Transfer: They buy insurance against shipment losses.
4. Retention: They accept the risk of some minor customer complaints, knowing it
won’t affect much.
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5. Monitoring: They keep monitoring market trends and customer reviews to handle
new risks quickly.
Just like our captain, they use a combination of methods to ensure a safe journey towards
success.
Conclusion
Risk management is not about eliminating risks completely—because that’s impossible. It’s
about being prepared. Just as no sailor can control the sea, no business or individual can
control every situation in life. But with the right methods—avoidance, reduction, transfer,
retention, and continuous monitoring—we can steer our ship safely even through
uncertain waters.
In the end, risk management is less about fear and more about wisdom. It teaches us to face
uncertainties with courage, plan with intelligence, and act with responsibility. Like a good
captain, a good manager doesn’t just hope for calm seas—he prepares for storms. And
that’s what makes the journey not just safe, but also successful.
6. Define the following:
(a) Surveyor
(b) Corporate risk.
Ans: Imagine for a moment that you are standing on a construction site. The sun is shining,
workers are busy with their tasks, machines are humming, and there is a sense of purpose in
the air. But amidst all this activity, you notice one person quietly observing everything with a
notebook in hand, measuring angles with a tripod instrument, and carefully noting down
every little detail about the land. That person is a Surveyor.
Now, fast-forward to a different scene. Picture yourself inside the headquarters of a big
company. The boardroom is full of executives discussing future plans—whether to launch a
new product, invest in another country, or expand into a new market. But there’s always a
concern: What if something goes wrong? What if the market crashes? What if a competitor
takes over? This fear of uncertainty, this awareness of possible dangers to a business, is
what we call Corporate Risk.
By linking these two—one in the physical world of land and measurements, and the other in
the corporate world of finance and decisions—we can begin to understand both concepts in
a clear and humanized way. Let’s dive deeper.
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(a) Surveyor – The Eyes and Ears of the Land
To define simply, a Surveyor is a professional who measures and maps the environment,
land, and structures to provide accurate data for planning, construction, and legal
purposes.
But if we stop at this plain definition, it feels dry. So, let’s bring it alive.
Imagine you want to build your dream house on a plot of land. You cannot just start digging
and laying bricks. You need to know the exact size of your land, its boundaries, the slope of
the ground, and even the hidden details like underground pipelines. If you make a mistake
here, your neighbor might claim part of your house is on his land, or your walls may start
cracking if the ground isn’t stable.
Here comes the Surveyor—a guardian of accuracy. He uses tools like theodolites, GPS
devices, drones, and measuring tapes to carefully record every inch of the land. With his
data, architects can draw correct maps, engineers can design safe buildings, and lawyers can
settle disputes over property boundaries.
To make it even simpler:
• If land is a storybook, a Surveyor is the one who writes the index and page numbers.
• Without him, the story would be full of confusion, missing chapters, and overlapping
sentences.
Surveyors are not limited to land alone. They also work in:
• Construction projects (roads, bridges, dams).
• Marine surveys (mapping the ocean floor).
• Mining surveys (calculating how much mineral is present).
• Insurance surveys (inspecting damages for claims).
In short, a Surveyor ensures that everything is measured correctly so the rest of the world
can build, plan, and grow with confidence.
(b) Corporate Risk – The Invisible Storms of Business
Now, let’s move from land to boardrooms.
Businesses are like ships sailing in the ocean. The ocean may look calm, but hidden beneath
are waves, storms, and icebergs. A smart captain must always think: What dangers lie
ahead? Similarly, companies must think about the risks they might face.
So, Corporate Risk refers to the possibility of losses or threats that a company may face
due to internal weaknesses or external challenges.
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Think of it this way—when a student prepares for an exam, there are risks:
• If he doesn’t study, he might fail.
• If he studies the wrong chapters, he wastes time.
• If he becomes sick before the exam, his performance drops.
A company faces the same uncertainty. Risks come in many forms:
1. Financial Risk – losing money due to poor investments or market crashes.
2. Operational Risk – problems in daily work like machine breakdowns or supply-chain
failures.
3. Strategic Risk – making wrong decisions about products or markets.
4. Reputational Risk – if customers lose trust because of scandals or poor service.
5. Legal/Regulatory Risk – changes in laws that force the company to pay fines or shut
down certain operations.
Let me tell you a real-world-like example.
Suppose a mobile phone company is launching a new model. They invest crores of rupees in
advertisements, design, and production. Suddenly, another competitor launches a cheaper
and better model at the same time. Customers rush to buy the competitor’s phone, leaving
the first company with unsold stock. That’s corporate risk in action.
In another case, think of airlines. If fuel prices suddenly rise, the company’s profits fall
drastically. That’s also corporate risk.
But risk is not always negative. Sometimes, by managing risks well, companies can even turn
them into opportunities. For example, during COVID-19, many companies faced the risk of
shutdown. But some smart firms shifted to online platforms, which not only saved them but
also made them grow faster.
Linking Both Together – The Spirit of Accuracy and Awareness
If you notice carefully, both Surveyor and Corporate Risk are connected by a common
thread: awareness and prevention.
• A Surveyor prevents mistakes in land and construction by measuring accurately.
• Corporate Risk management prevents losses in business by preparing for
uncertainties.
One works on the ground with tools like GPS and tapes, while the other works in offices with
data, forecasts, and strategies. But both are equally important.
Without a Surveyor, cities would be chaotic, with disputes over boundaries and unsafe
structures. Without risk management, companies would collapse at the first sign of trouble.
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Why These Definitions Matter for Students
You may wonder—why should a student care about these definitions? The reason is simple:
both are examples of how knowledge translates into real life.
• If you become an engineer, you’ll often depend on a Surveyor’s data.
• If you enter business or management, you’ll constantly deal with Corporate Risk.
Even in daily life, these ideas matter. When you buy land, you need a survey. When you
start a small business, you must think about risks. These aren’t just textbook concepts—they
are part of the practical world around us.
Conclusion – A Story of Clarity and Caution
So, to wrap up our story:
• A Surveyor is like a careful storyteller of the land, ensuring that every measurement
and boundary is precise. He brings order to the chaos of nature.
• Corporate Risk is like the invisible weather of business—storms that can either sink
the ship or, if navigated wisely, push it forward.
Both remind us of one simple lesson: success lies in preparation. The more accurately you
measure and the more wisely you prepare, the fewer mistakes you make in life.
And that is why understanding these terms is not just about writing an exam answer—it’s
about appreciating how the world around us functions with precision and caution.
SECTION-D
7. Discuss in brief the various techniques used to identify and assess the potential risk to
an organization. Also explain the qualitative techniques with relevant examples.
Ans: A Fresh Beginning
Imagine you are the captain of a ship about to set sail across the ocean. Your crew is excited,
your cargo is valuable, and your destination promises huge rewards. But as a wise captain,
you know that the sea is never predictable—storms may appear, pirates might attack,
equipment could fail, or your sailors might get sick.
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Now, if you just shut your eyes and prayed for smooth weather, chances are your journey
might end in disaster. Instead, you would carefully plan: checking the weather forecast,
inspecting the ship, training your crew, and even preparing emergency lifeboats.
This is exactly what an organization does when it identifies and assesses potential risks. The
"ocean" is the business environment, full of uncertainties, and the company must prepare
to face anything that could affect its survival or growth.
So, let us understand how organizations do this by looking at various techniques to identify
and assess risk, and later, we’ll focus in detail on qualitative techniques with examples.
Techniques to Identify and Assess Potential Risks
Organizations use multiple approaches to figure out “what could go wrong” and “how badly
it could hurt us.” Here are some of the most commonly used techniques:
1. Brainstorming
o Just like a group of friends sitting together to plan a trip and listing down
everything that could possibly happen—missed train, lost luggage, bad
weather—companies bring employees and experts together to think of
possible risks.
o Example: A software company launching a new app might brainstorm risks
like system crashes, data leaks, negative reviews, or even sudden changes in
government data policies.
2. Checklists
o Think of this like a pilot’s pre-flight checklist. Organizations create structured
lists of common risks based on past experience or industry standards.
o Example: A hospital may have a risk checklist covering equipment
breakdown, patient safety issues, and medicine stock shortages.
3. Interviews and Surveys
o Managers often talk to employees, stakeholders, or industry experts to
gather opinions about potential risks.
o Example: Before starting a construction project, a firm might interview
engineers, workers, and local authorities to identify risks like labor strikes,
land disputes, or safety hazards.
4. SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)
o This is like looking into a mirror and asking: What are we good at? Where are
we weak? What opportunities lie outside? What threats could harm us?
o Example: A retail company might find that its strength is strong supply chains,
but weakness is dependence on imported goods—making currency
fluctuations a big risk.
5. Delphi Technique
o This is like consulting a panel of “wise experts” but in a structured way.
Experts provide their opinions anonymously, and through several rounds of
feedback, a consensus is reached about the biggest risks.
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o Example: An energy company might use Delphi to assess future risks of
renewable energy adoption and government regulations.
6. Historical Data Analysis
o Looking at past incidents to understand what might happen again.
o Example: An airline would study previous flight delays, accidents, or fuel price
spikes to predict future risks.
7. Flowcharts and Process Analysis
o Mapping the flow of work step by step helps to see where risks could appear.
o Example: A bank may create a process flowchart for loan approvals to
identify risks of fraud, document errors, or delays.
8. Scenario Analysis
o Here, companies imagine “what-if” situations. What if demand suddenly
drops? What if a competitor launches a better product?
o Example: A smartphone company might simulate a scenario where a global
chip shortage delays production.
Assessing the Risks
Identifying risks is just the beginning. The next step is to assess them—basically answering
two questions:
1. How likely is this risk to happen?
2. If it happens, how bad will the impact be?
To answer these, organizations use both quantitative (numbers, statistics, financial
calculations) and qualitative (descriptions, judgments, relative rankings) methods. Since the
question wants more focus on qualitative techniques, let’s explore that in detail.
Qualitative Techniques for Risk Assessment
Qualitative techniques don’t rely heavily on numbers but on judgment, experience, and
descriptive analysis. They are particularly useful when there isn’t enough data or when risks
are complex and uncertain.
Here are the main qualitative techniques with examples:
1. Risk Probability and Impact Matrix
• Imagine drawing a simple grid: on one axis, you mark the probability (low, medium,
high), and on the other, you mark the impact (low, medium, high).
• Each risk is then placed somewhere on this grid.
• Example: In an IT project, a “server crash” might be high impact, medium
probability, while “user interface complaint” might be low impact, high probability.
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• This helps the organization decide which risks to give priority to.
2. Risk Categorization
• Risks are grouped into categories like financial, operational, strategic, environmental,
or compliance.
• Example: For a manufacturing company:
o Financial risk → Increase in raw material cost
o Operational risk → Machine breakdown
o Environmental risk → Pollution regulation changes
• Categorization ensures that no area is overlooked.
3. Expert Judgment
• Sometimes, the best way to assess a risk is simply to ask experts for their insights.
• Example: A bank might rely on cybersecurity experts to assess how serious a
potential hacking attempt could be.
4. Risk Ranking or Prioritization
• Once risks are listed, they are ranked in order of seriousness. This is often done by
giving them labels like “critical,” “major,” or “minor.”
• Example: In a hospital, the risk of oxygen supply running out would be ranked as
“critical,” while shortage of parking space might be “minor.”
5. Scenario Analysis (Qualitative Form)
• Here, instead of using numbers, managers imagine different “stories” or future
situations and discuss how the organization would respond.
• Example: A school may imagine a scenario where online classes must suddenly
replace physical classes, and then think about risks like digital divide, student
engagement, and teacher training.
Why Qualitative Techniques Are Important
• They are easy to use when numbers are not available.
• They bring in human judgment and intuition, which is sometimes more valuable
than pure statistics.
• They are especially useful for new projects or industries where no past data exists.
• They help in building awareness among employees by discussing risks in plain
language rather than abstract numbers.
A Story-Like Example
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Think of a restaurant owner planning to expand by opening a new branch. When he sits
down with his team, they brainstorm risks: low customer turnout, competition, food safety
issues, staff shortages. Then, instead of calculating detailed financial probabilities, they use
a qualitative approach:
• Low customer turnout → High impact, medium probability (serious risk).
• Competition → Medium impact, high probability (needs constant monitoring).
• Food safety issues → Very high impact, low probability (critical to prevent).
By discussing these risks openly and categorizing them, the owner can prepare better—
maybe by investing in strong food safety standards and planning aggressive marketing.
Conclusion
Just like our captain of the ship, every organization sails through uncertain waters.
Identifying risks is like spotting the dark clouds, and assessing them is like estimating how
severe the storm might be. While quantitative methods give hard numbers, qualitative
techniques add human wisdom and judgment, making them indispensable.
In simple words, qualitative risk assessment is like a conversation—where managers,
employees, and experts sit together, imagine possibilities, and decide how to prepare. And
often, this conversation makes all the difference between sinking in the storm or reaching
the shore safely.
8. Discuss the techniques used for gathering data for risk management.
Ans: Imagine you are the captain of a big ship sailing through the ocean. The weather looks
calm, the sky is blue, and everything seems perfect. But deep down, you know the sea can
be unpredictable. A sudden storm, hidden rocks under the water, or even pirate attacks
could put your ship at risk. What would you do as a smart captain?
You wouldn’t just close your eyes and pray for the best—you would gather information. You
would check the weather forecast, talk to sailors who have traveled the same route, study
maps for possible obstacles, and even inspect your own ship for weaknesses.
This is exactly what risk management is like in the business world. A company, like a ship,
faces many uncertainties. To survive and grow, managers need to identify possible risks and
prepare for them. But before they can manage risks, they need to collect the right data
about those risks. That’s where data-gathering techniques for risk management come into
play.
Let us now explore these techniques in a way that feels like a journey—step by step.
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1. Brainstorming – The Power of Many Minds
Think of a group of sailors sitting together before starting the voyage. Each one shares their
experiences—one says, “Last time we faced a storm in this area,” another warns, “Beware
of rocks near the shore,” while another adds, “Pirates often attack around here.” By
combining everyone’s knowledge, the captain gets a better picture of what risks may lie
ahead.
In business, this is called brainstorming. Teams come together to openly discuss what could
possibly go wrong in a project. No idea is considered silly; everyone is encouraged to
contribute. This technique is useful because people with different perspectives highlight
risks others might miss.
Why it works: It captures a wide variety of possible risks and brings creativity into the
process.
2. Interviews – Talking to the Experts
Imagine our ship captain meeting an old fisherman who has spent decades at sea. The
fisherman knows hidden routes, dangerous zones, and safe harbors. By interviewing him,
the captain gets first-hand, reliable insights that no book or map could provide.
In risk management, interviews serve the same purpose. Project managers or risk officers
talk directly to experts, stakeholders, or even customers to gather information. Interviews
can be structured (with pre-set questions), unstructured (free-flow conversations), or semi-
structured (a mix of both).
Why it works: It gives deep, specific, and experience-based knowledge that written reports
often fail to provide.
3. Questionnaires and Surveys – Gathering Many Voices at Once
Now picture the captain handing out small cards to all sailors, asking: “What dangers do you
think we might face?” Each sailor writes down their thoughts. This way, the captain collects
opinions from everyone without spending hours talking to them individually.
In risk management, this technique is known as questionnaires or surveys. By designing
questions carefully and distributing them to a large group of people, managers can collect a
wide range of views quickly.
Why it works: It helps in gathering data from many people in less time, and it also provides
quantifiable results that can be analyzed statistically.
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4. Checklists – Learning from the Past
When a pilot flies an airplane, they always go through a checklist—engine check, fuel check,
safety equipment check. Why? Because many accidents in the past happened when these
things were ignored.
Similarly, in risk management, checklists are created based on previous projects or
experiences. These lists contain common risks that organizations have faced before.
Managers can use them as a quick tool to ensure they are not overlooking any major issue.
Why it works: It prevents repeating old mistakes and provides a structured, ready-made
guide to identify risks.
5. Historical Data and Records – Looking Back to Look Forward
Suppose our ship captain keeps a logbook that records every journey—storms faced,
damages suffered, routes taken, and lessons learned. Before starting a new voyage, the
captain studies this logbook to prepare better.
Organizations also keep records of past projects, audits, accidents, and financial results. By
analyzing this historical data, managers can predict the likelihood of similar risks occurring
again.
Why it works: Past data often reveals patterns that help forecast future risks.
6. Delphi Technique – Silent Wisdom of Experts
This one is quite interesting. Imagine the captain cannot gather all the sailors in one room
because they may argue and influence each other’s opinions. Instead, he secretly asks each
sailor to write down what dangers they see. Then, he combines the answers, shares the
summary with everyone, and asks them to revise their views. This process continues until a
common agreement is reached.
This is exactly how the Delphi technique works. Experts provide their opinions
anonymously, in several rounds. Gradually, their views converge into a well-rounded
judgment of risks.
Why it works: It avoids peer pressure and gives unbiased, collective wisdom.
7. SWOT Analysis – Seeing the Bigger Picture
Think of the captain analyzing the journey like this:
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• Strengths: Strong ship, skilled crew.
• Weaknesses: Limited food supply.
• Opportunities: Shorter route discovered.
• Threats: Possible storms.
This is what SWOT analysis does for organizations. By identifying internal strengths and
weaknesses, along with external opportunities and threats, companies can get a balanced
view of risks.
Why it works: It doesn’t just look at threats but connects them with strengths and
opportunities, giving a holistic picture.
8. Cause-and-Effect (Ishikawa) Diagrams – Tracing the Root of Risks
Suppose a ship once sank because of an accident. Instead of just saying “storm caused it,”
the captain draws a diagram: storm → water leakage → weak hull → poor maintenance.
This way, he identifies the root causes, not just the surface problem.
In risk management, Ishikawa or fishbone diagrams are used to break down risks into
possible causes—like human error, machinery failure, environmental factors, etc.
Why it works: It helps organizations fix the real cause, not just the symptoms of risks.
9. Workshops and Group Discussions – Shared Wisdom
Sometimes, the captain gathers all sailors for a workshop where they discuss safety drills,
emergency plans, and possible challenges. This open interaction ensures everyone is on the
same page.
Businesses also use risk workshops where stakeholders, experts, and employees discuss
risks together.
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Why it works: It combines formal discussion with practical problem-solving.
10. Observation – Seeing with Your Own Eyes
Imagine the captain walking around the ship, checking the sails, ropes, and anchor
personally. By observing carefully, he notices risks others might miss.
In risk management, managers often use direct observation to understand processes, safety
practices, and working conditions.
Why it works: It provides real-time, first-hand data about risks.
Conclusion: Why These Techniques Matter
If our ship captain ignored all these techniques and just trusted luck, the voyage would be
risky and full of surprises. But by gathering data smartly, the captain transforms uncertainty
into preparedness.
In the same way, organizations use these techniques—brainstorming, interviews, surveys,
checklists, historical data, Delphi, SWOT, fishbone diagrams, workshops, and observations—
to identify and analyze risks. Each technique has its own strengths, but together they create
a complete toolbox for effective risk management.
Risk management is not about predicting the future with 100% accuracy—it’s about being
ready for whatever comes. Just like the sailor who respects the sea but sails confidently, a
good manager respects risks but faces them with preparation, not fear.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
