SECTION B

Instruction: Complete ALL questions from this section.

Question 1

John Strength owns and manages Strength Dynamics, which specialises in the design and manufacture of new forms of exercise equipment. Strength Dynamics sells its equipment to health and fitness clubs island-wide. The nature of Strength's products exposes the firm to a variety of risks. Some examples include the possibility that someone might be injured on a piece of Strength's equipment and claim that it was improperly made. Another person might have a heart attack and die while working out, with the surviving family members claiming that the Strength's equipment was to blame. Strength has been conscientious about identifying and analysing the sources of risk to which it is exposed. Now the company must consider alternative ways to deal with those risks. It is possible that there may be some forms of equipment that Strength will not manufacture at all because of the high probability of serious losses. However, Strength is generally committed to the industry and in most cases wants to explore risk management alternatives that are compatible with continuing to produce a wide variety of new products. If Strength can determine ways to produce safer products that have a reduced likelihood of causing losses, the firm will examine the economic feasibility of alternative manufacturing/inspection processes. Similarly, Strength is interested in exploring ways to make the health and fitness clubs bear more responsibility for losses, even when they involve Strength equipment.

Required:

A. Explain the concept of 'risk avoidance' and explain to Strength Dynamics when this would be an appropriate risk management technique for them. (5 marks)

B. Discuss THREE (3) other risk management techniques with appropriate examples that Strength Dynamics may use in its business. (12 marks)

C. What technique can be used by Strength Dynamics to make the fitness clubs bear some of the losses? (3 marks)

(Total 20 marks)