BWRR 3033 RISK MANAGEMENT

Case Study

Abu was a risk manager hired by a machinery leasing company to think of ways and to present his ideas to the top management on how the company could manage the loss exposures of its generators for lease. The machinery leasing company had experienced a loss of three generators in the past three years. Recently, a similar loss happened again as one of its two generators leased to a customer had been stolen.

The Generators

The machinery leasing company had agreed to lease two generators of 20 KVA and provide generator maintenance service twice weekly for three years to a customer which was a telecommunication company. Under the contract, one provision stated that the lessor could hold the lessee responsible for a loss, if the loss was due to the negligence of lessee. Meanwhile, another provision stated that the lessor should insure the equipment for lease. In line with the latter provision, the machinery leasing company had purchased industrial allrisks insurance with a deductible of RM1,500 on each and every loss for its generators.

The machinery leasing company had delivered two generators to the customer's telecommunication site. The generators were placed beside the transmission room and they were welded to iron anchors on a concrete slab in the compound of the telecommunication site. The generators were used to supply power to the digital equipment in the transmission room. Only one generator was in use at a time. The generators switched operation twice weekly for maintenance purpose and this task was performed by a technician of the machinery leasing company.

The Telecommunication Site

The telecommunication site of the customer was located at higher ground in a secluded area. No one was stationed at the site. The compound of the site was protected by an eightfoot high chain-link fencing topped with barbed wires. The main entrance was protected by a wire mesh gate secured with a padlock.

The lands to its left and at its back were not being developed. These two sides of lands were surrounded by trees. At the left, the land was packed with trees which had grown extensively over the years. At the back, rows of coconut trees filled the land behind the telecommunication site. A transmission tower and a transmission room were erected at the site's enclosed area.

The transmission tower was at the front and the transmission room was at the back. Both the transmission tower and transmission room were situated at the left of the telecommunication site. The transmission room was installed with an alarm system which was directly connected to the telecommunication company's office. The alarm would be set off when the power supply was found faulty or when the transmission room was trespassed. At this time, the telecommunication company's office would be alerted automatically to take actions to investigate the situation.

Refer to Figure-1 for the sketch diagram of the telecommunication site of the telecommunication company.

The Incident of Generator being Stolen

The incident of generator gone missing was discovered by a technician of the machinery leasing company when the technician who instructed by his supervisor to visit the telecommunication site. This was because the supervisor had received an emergency call from the office of the telecommunication company. Upon arrival at the telecommunication site, the technician discovered that the main gate to the transmission tower was partly opened, the padlock chain was cut and one of the two generators had gone missing.

Subsequent to the discovery, the machinery leasing company had taken immediate action to replace the missing generator for its customer so that power supply could be restored to the digital equipment in the transmission room at the telecommunication site.

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