Aleksey Morozov Sam Spaulding Kevin Puente Guard Pro Athletics Risk Analysis Friday, April 5, 2013

ASK Consultants

TABLE OF CONTENTS
I. Executive Summary...3 II. Introduction...5 III. Risk Identification/Valuation Direct Property.....................6 Buildings..................................................................................................................6 Improvements and Betterments................................................................................9 Personal Property9 Indirect Property11 Business Interruption.11 Contingent Business Interruption..14 Building Ordinance15 Leasehold Interest..17 Liability......17 Premise and Operations17 Products.29 Auto32 Advertising.34 Employment Practices...34 Professional...41 Contractual Liability..42 Personal..................46 Workers Compensation..46 Business Continuation...48 Employee Benefits..50 Crime..................50 IV. Risk Treatment Retention54 Retention Capability..54 Retention Options...55 Insurance and Risk Financing....56 Property Insurance58 Liability Insurance.63 1

TABLE OF CONTENTS CONTINUED

Workers Compensation..65 Loss Control...................67 Property67 Crime68 Fleet..68 Personal....69 V. Risk Administration Policy Statement71 Program Organization72 VI. Appendix....74 Risk Identification Workbook.Appendix A Auto Premium Workbook....Appendix B Business Income Workbook....Appendix C Claims Analysis Workbook.....Appendix D Leasehold Interest Workbook......Appendix E Premium Analysis Workbook..Appendix F Ratio Workbook..Appendix G Sprinkler Analysis Workbook.Appendix H Workers Compensation Premiums Workbook..Appendix I Workers Compensation Injury Workbook....Appendix J Workers Compensation Claims Workbook.Appendix K Professional Employer Organization (PEO)....Appendix L Flood Map and Information....Appendix M Key Man Insurance Information.Appendix N Anti-Counterfeiting Information..Appendix O Functional Replacement Cost...Appendix P Ordinance and Law Information..Appendix Q

I. EXECUTIVE SUMMARY
After performing an extensive review of Guard Pro Athletics (GPA) company procedures, we have discovered numerous risks that need to be assessed and addressed with proper treatments. Many of the risk that have been identified can be corrected promptly due to the nature of the risk, while other that can cause a total shut down require more detail oriented treatments. In this paper, we will discuss a structured risk management plan that will identify key risks as well as proper treatments that will reduce the actual cost of risk. The bloodline for all manufacturing companies is the ability to distribute their manufactured goods to buyers; various supply chain risks have been identified within GPA. This includes relying solely on one production plant for the construction of sellable goods, as well as only having one raw material supplier. We urged on looking at other possible locations for production and the supply of raw materials to prevent any unforeseen circumstances that would result in a shut down of operations. As a manufacturing company, GPA faces large exposures due to their production of goods, which can have costly effects associated with liability of their products. They will be the targets of any liability case associated with products they manufacture. Thus it is important for GPA to consider how to properly prepare and protect against product liability lawsuits. With out proper preparation, they will be left vulnerable should a product liability suit arise. Another significant risk that needs to address immediately is the inadequate training procedures set by the company that is noncompliance with OSHA requirements. For GPA, not satisfying OSHA requirements would result in a complete shut down if an inspection were to identify the issue. Therefore, they should consider how they train their employees to satisfy the OSHA conditions to prevent a total shut down of operations as well as to prevent injuries that can arise from improper training. Multiple exposures have been uncovered in regards to GPAs Information Technology Department. Problems include the ease of hackers getting into the network system through employee login system and viewing sensitive information that is linked to profits as well as criminal intent to destroy the network by individuals. By not having a secure network as well as procedures how to handle instances that make the network vulnerable could result in losses that GPA could not foresee. Therefore, by setting up a closed network and emplacing procedures that handle the firing of employees log ins can result in secured plan to mitigate against these types of losses. There is a large risk exposure that GPA possesses by relying solely on ChemPro as their provider of raw materials. If anything were to happen to ChemPros facility, business at GPA would be suspended until ChemPro is operational again. Therefore, it is important for GPA to consider other businesses to supply them with raw materials. This can be achieved by setting up a emergency contract with another facility that would become GPAs provider of raw materials should ChemPros operations being shut down.

Another issue that has been identified is the patent that GPA possesses will expire in the next five years. This is an issue because our competitors could now use GPAs technology in their product line due to them no longer having exclusivity to those products. We suggest that GPA should improve their current line with new innovative materials thus making it a again unique and eligible for a new patent. In conclusion, we believe by addressing these risks and the additional exposures that will be talked about in greater detail later in the paper GPA will be able to reduce their overall cost of risk and risk in general. With the operational information thats been provided for us, we have created a extensive report of suggestions that will bring value and uncover the needs of GPA.

II. INTRODUCTION
At ASK Consultants, we have uncovered a variety of risks that GPA currently carries with them and have proposed adequate solutions for these issues. These risks differ in their frequency and severity and will have a wide range of solutions ranging from all the way from loss control to avoidance. We have made recommendations on how each risk should be treated in order to reduce GPAs overall cost of risk. In Section IV, all identified risks are separated into different categories. Categories included are: direct property, indirect property, liability, personal, and crime. Here, we have provided a brief description of the risk along with its coinciding treatment recommended in order to reduce the cost of risk. We will implement loss control, retention, transfer of risk, and avoidance of risk. In the following section, a detailed view at some of the specific treatments is presented. These detailed treatments are provided in order to produce a better understanding for specific treatments. Treatments will range from having retention analysis providing GPAs retention capability and options; Some treatments will entail insuring the risk and risk financing, because their severity would be too much for the company to retain, and thus must have the risk transferred to an insurer; last but not least some treatments will require loss control by GPA, and the solution is to be handled by GPA itself, and require the least financing in order to resolve the issue. Ask insurance will also evaluate which risks pose potential problems for GPA along with a schedule of when and how they should be treated. Additionally we will include the approximate cost of the coverage options we have suggested for the company to implement. Lastly, a section on risk administration will be included to describe how to implement our suggested plans. Additionally appendixes will be provided in order to give GPA executives a better understanding of our recommended treatments. We hope that GPA will highly consider implementing the recommended treatments provided in our analysis of the company. Our top executives, Sam Spaulding, Kevin Puente, and Aleksey Morozov have been working diligently for months in order to identify and treat the risks associated with GPA. We believe our recommendations are the most effective and affordable treatments methods necessary to protect GPA against unforeseen risks.

III. RISK IDENTIFICATION/VALUATION

For a complete list of the risks and treatments that will be discussed, please refer to Appendix A to view the risk identification workbook. All of the risks were evaluated based on frequency and severity with values ranging from one to five; one being the least frequent or severe to five being the most frequent and severe.

A. DIRECT PROPERTY Buildings

Risk: Tacoma, WA. Site is 50 years old; subject to all perils The Tacoma, WA site is 50 years old and is subject to perils. This is GPAs main distribution facility and currently handles all of their shipping to other parts of their distribution channel. The severity of this risk is a five because should GPA lose this building due to a catastrophic event their distribution channel would essentially be shutdown. Additionally, the frequency of the risk is a one because the site can only be 50 years old once. Treatment: Recommended that GPA protect their building by adding the functional building valuation coverage endorsement to their property insurance policy. Though this may be an expensive policy to buy considering the age of the Tacoma site it is still a cheaper option than having to purchase another property in the same area or rebuild a new facility today at the current location. By adding the functional building valuation endorsement should any loss or damage occur to the insured property the insurance policy would step in and pay for the cost to replace the building for the same use the cheapest cost. This will allow GPA to rebuild the current facility in good standing with codes and in the same location should it be damaged or destroyed by a peril. Risk: Miami, FL. Building 6 years old; subject to perils The Miami, FL building is 6 years old and subject to perils. Miami is one of GPAs distribution centers and with our recommendation potentially will double as a manufacturing site. The severity of the risk is a five because should this building be destroyed GPA will lose its southern most distribution center and newly added manufacturing site. Additionally, the frequency of this risk is a one because that Miami location can only be 6 years old once. Treatment: Recommended that GPA protect their building by adding the functional building valuation coverage endorsement to their commercial property insurance policy. By adding the functional building valuation endorsement should any loss or damage occur to the insured

property the insurance policy would step in and pay for the cost to replace the building using materials that cost less but get the same job done. This will allow GPA to rebuild the current facility in good standing with codes and in the same location should it be damaged or destroyed by a peril. Thus, allowing them to resume normal operations as soon as possible. Risk: Seattle, WA factory section is 15 years old; subject to all perils The Seattle, WA factory section is 15 years old and subject to perils. This is GPAs main manufacturing facility and currently produces 95 percent of their completed products. Due to the buildings being 15 years old, there is concern that the infrastructure of the building is weak and thus is subject to a higher chance of loss. The frequency is only a one because the business can only lose the property once per each occurrence. The possibility of a complete loss to the building brings the severity to a five. Treatment: Recommended that GPA protect their building by adding the functional building valuation coverage endorsement to their commercial property insurance policy. By adding the functional building valuation endorsement should any loss or damage occur to the insured property the insurance policy would step in and pay for the cost to replace the building using materials that cost less but get the same job done. This will allow GPA to rebuild the current facility in good standing with codes and in the same location should it be damaged or destroyed by a peril. Thus, allowing them to resume normal operations as soon as possible. Risk: Seattle WA, building 30 years old; subject to perils There are many risk associated with having a 30 year old building used as a primary construction facility. As building age, they become less resistant to the harsh weather. The building has a frequency of a one because the loss can only occur once. The main concern for GPA would be facing a partial or complete loss on the building. Bringing the severity for it is a five. Treatment: Recommended that GPA protect their building by adding the functional building valuation coverage endorsement to their commercial property insurance policy. By adding the functional building valuation endorsement should any loss or damage occur to the insured property the insurance policy would step in and pay for the cost to replace the building using materials that cost less but get the same job done. This will allow GPA to rebuild the current facility in good standing with codes and in the same location should it be damaged or destroyed by a peril. Thus, allowing them to resume normal operations as soon as possible. Risk: Signs outside each facility, $8,000 each; subject to all perils Signs outside of each of the five facilities are subject to perils. There is one sign at the entrance of each location. The signs are all outdoors so they are constantly exposed to harsh

weather conditions. This puts the frequency at a five. The replacement cost for each sign is $8,000, which brings the severity up to a three. Treatment: Suggest Inland Marine Sign Coverage to be purchased in order to insure all signs for GPA. There is a total coverage of $40,000. This means each sign at each location is covered for its full cost of $8,000, due to a loss from covered perils. Risk: Flood Coverage to all locations Some of the locations that GPA has facilities have a high risk for floods. For example, due to the location of Florida, it is subject to hurricanes at a high rate. This brings the overall frequency to a two. Some locations are severe flood zones, which mean there are high risks for floods from heavy rains, let alone the high risk of hurricanes for Florida. If a flood where to occur the loss would be detrimental. There could be a loss to the entire structure of the buildings and also the property inside of the premise the severity is a five. Treatment: Suggest that GPA purchases Flood Coverage for all locations. By purchasing flood insurance, the costs associated with floods are greatly reduced. GPA would not have to be concerned with the severe losses that can occur to buildings and property due to flooding. All GPA locations will have full coverage for their buildings and property. Risk: San Mateo, CA outlet building; subject to all perils The San Mateo, CA outlet building is a new GPA operation that is subject to perils. The new location will serve as an outlet store to sell outdated products at discounted rates. If the store where to suffer a loss, business venture would be lost along with the capital invested. The severity of the risk is a five, because should GPA lose this building due to a catastrophic event their building would be shut down immediately. Additionally the frequency of the situation is a one because Treatment: Recommended that GPA protect their building by adding the functional building valuation coverage endorsement to their commercial property insurance policy. By adding the functional building valuation endorsement should any loss or damage occur to the insured property the insurance policy would step in and pay for the cost to replace the building using materials that cost less but get the same job done. This will allow GPA to rebuild the current facility in good standing with codes and in the same location should it be damaged or destroyed by a peril. Thus, allowing them to resume normal operations as soon as possible.

Improvements and Betterments

Risk: Tacoma, WA facility does not have sprinklers Currently GPAs Tacoma facility does not have sprinklers which poses a risk should a fire erupt. Sprinklers are the first defense when a fire occurs and having them can lessen the damage done to the building and property inside. Therefore, by not having sprinklers installed it increases the likelihood of losing the building and property inside of it should a fire happen. Additionally, the nearest fire station is located 8 miles from this location in a downtown area which may slow fire crews response times to a fire on-site. Overall, the frequency and severity of this risk is a 5 because sprinklers are not currently installed which could leave GPA with a huge bill if a fire were to happen. Treatment: Advise GPA to install sprinklers at the Tacoma facility. By installing sprinklers this will reduce the overall insurance premium on the building because it can now withstand a fire for a longer period of time. In fact, according to the sprinkler system analysis it will save GPA nearly $37,000 annually in premiums and cost approximately $90,000 to install. Thus, after having the sprinkler system for three years it will have paid for itself in premium savings alone. Overall, by adding sprinklers to the Tacoma location it will increase the survivability of the building and its contents while saving GPA money in the long run. For further details regarding these calculations please refer to Appendix H

Personal Property
Risk: Five company trucks/trailers; subject to all perils Five company trucks/trailers are subject to perils for GPA. There is the risk of the car being vandalized and/or stolen, along with the risk for collision and liability. These vehicles are driven on a regular basis, placing frequency at a five. These risks are severe and can have an extremely harsh consequence for the company. Not only is there a risk for actual property loss, but also if there is a liability issue, it could result in a lawsuit. This places severity for the situation at a five. Treatment: Recommend that GPA purchase Automobile insurance. This coverage will include both liability and collision. By purchasing both liability and collision, this will allow the risk of loss, whether or not the vehicles are in use, to decrease by a substantial amount. The vehicle itself will be fully covered along with any liability that is involved with the vehicle.

Risk: Five company passenger vehicles; subject to all perils Five company passenger vehicles are subject to perils for GPA. There is the risk of the car being vandalized and/or stolen, along with the risk for collision and liability. These vehicles are driven on a regular basis, placing frequency at a five. These risks are severe and can have an extremely harsh consequence for the company. Not only is there a risk for actual property loss, but also if there is a liability issue, it could result in a lawsuit. This places severity for the situation at a five. Treatment: Recommend that GPA purchase Automobile insurance. This coverage will include both liability and collision. By purchasing both liability and collision, this will allow the risk of loss, whether or not the vehicles are in use, to decrease by a substantial amount. The vehicle itself will be fully covered along with any liability that is involved with the vehicle. Risk: Patent Expiring Currently, GPA has sole ownership of the exclusive technology that is used to make their product. However, GPAs patent expires in five years, which could mean losing some of their market share due to other companies entering the market and trying to reproduce GPAs product at lower cost. According to Beverly Bird (2002), The expiration of a patent creates pricing competition as your invention begins popping up on store shelves everywhere.1 This could drive the demand for GPAs products down as well as its price because the consumer can now buy a different brand that offers the same benefits as GPAs product. Due to the patent not expiring for another five years the frequency is a one. The severity however is a five due to this patent being the only thing that is keeping out other competitors out of the market. Treatment: GPA could apply for a new patent by altering their current product with new innovative material in order to make it again unique and stand out from the competitors. Additionally, GPA will want to keep some part of the way their product is manufactured a secret. When applying for patents you have to disclose the process of your creation, but by holding back small details you can keep uniqueness to your product and differentiate it from new competitors that can now enter the market (this is called a trade secret). Risk: Equipment could break down (Seattle, WA) The equipment GPA relies on to make their custom products could potentially breakdown, thus the frequency is a two. This could be due to normal wear and tear, a part 1 Bird, B., & Demand Media. (2011). What Happens to a Patent When it Expires?Legalzoom. Retrieved February 26, 2013, from http://info.legalzoom.com/happens-patent-expires20317.html

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malfunctioning, a power surge or even an employee error. In any case, the end result could mean temporary or complete shutdown of the production facility, thus the severity is a five. Currently GPA relies solely on this equipment each day to produce enough products to serve their clientele. Their current plan is to have common replacement parts stockpiled in the Seattle facility in case the machine malfunctions. This is a good idea and may solve some problems but these replacement parts cannot be relied upon. If anything were to happen with their equipment in their current state, chances are high a complete shutdown of production would occur until the machine is up and running. Treatment: Urge GPA to purchase Equipment Breakdown Insurance. By GPA having Equipment Breakdown Coverage they are virtually protecting against anything that can go wrong with their equipment in their own facility. According to Mark MacGougan (2013), You should think of equipment breakdown coverage as being like accident, health and disability insurance for your equipment. 2 The reason GPA should think like this is because accidents can happen, and leave your equipment out of work due to injury. However, by purchasing Equipment Breakdown Insurance this will cover GPA should a piece of equipment not function properly due to a power surge, mechanical breakdown or other issues in house. This will allow GPA to continue business and/or resume their normal business operations as quickly as possible should a machine malfunction for a variety of reasons.

B. INDIRECT PROPERTY Business Interruption

Risk: Unreliable shipping from India In the past two years the manager of the Tacoma facility has repeatedly complained about unreliable shipping from the international supplier in India. Due to this occurring on more than one occasion the frequency is a four. On several occasions the Tacoma facility has received damaged goods due to poor packaging and even short counts on the shipped products. This resulted in GPA having to hire an express jet on one occasion to insure timely delivery of their product to a professional team in New York. If GPA had not chartered the jet to insure timely delivery, it could have meant losing a professional team as a GPA client. Due to product loss, reputation loss and having to make arrangements on the fly the severity of this risk is a four. Treatment: Recommended terminating the contract with India. India is currently responsible for only five percent of GPAs manufacturing which is an amount that can be easily transferred elsewhere. In fact, we recommended that GPA build a manufacturing facility in Miami and if 2 Ennico, C. (2003, May 19). Why You Need Equipment Breakdown Insurance.Entrepreneur. Retrieved March 11, 2013, from http://www.entrepreneur.com/article/62068 11

they did, the five percent of the manufacturing could be done here and under GPAs rules and regulations. The reliability of GPA would increase dramatically; as they would now not have to worry about receiving short counts and damaged products. Additionally, should their be a delay in the manufacturing process GPA would be the first to know and be able to make better arrangements to insure timely delivery rather than having to make a costly last minute decision like chartering a jet due to someone elses mistake. Risk: Virus got into company computer system suspending company email and inventory The server in San Francisco was shut down for nearly two days when a virus entered the computer system, which took out GPA company email, and their inventory management system. This is a clear problem because in todays day and age companies rely heavily on e-mail for communicating with clients and co-workers. Additionally, a shutdown of the inventory management system is a big problem. GPA would be unable to keep track of where inventory is and how much they have at each location. Due to the virus suspending the email and inventory management systems the severity if a four. Furthermore, the frequency is a one because so far GPA has only had one virus infiltrate their system. Treatment: Recommend that GPA enact a company internet usage policy This policy will spell out for the employee what type of Internet use is allowed and not allowed at work. In addition it will also tell them the consequences of not following directions such as suspension or getting fired. According to Employers (2013), Make sure the policy is in writing and placed clearly in the employee handbook. 3 This way all new employees will know immediately coming in the rules and regulations when it comes to Internet use on company computers. It was determined the virus entered the computer system due to an employee downloading a corrupt file. Having this policy in force can prevent actions like this. Employees will understand that the penalty for visiting unauthorized websites and downloading programs that are unrelated to work are harsh and could cost them their job. Risk: Possible government quarantine of GPA Seattle, WA. facility due to a chemical disbursement in the vicinity There is a chemical plant less than a mile away from the Seattle, WA manufacturing plant. If there is some type of mistake at that chemical plant, the environment around it may become hazardous. There is the risk that GPAs manufacturing plant would be required to temporarily close down. The frequency is a one, because this is depending on a separate company from GPA having a meltdown at their plant. This manufacturing facility is responsible for ninety-five percent of GPAs manufacturing, which would put the severity at a five.

3 Employers Can Restrict Employee Web Surfing. (2013). Lawyers. Retrieved February 26, 2012, from http://labor-employment-law.lawyers.com/human-resources-law/Employers-CanRestrict-Employee-Web-Surfing.html 12

Treatment: It is recommended that GPA expand the Miami, FL location to also include a manufacturing plant. If they were to be able to manufacture the same amount as the Seattle facility, if something where to open, GPA would be able to close down their Seattle, WA facility for a few days without a major negative effect. This also brings added benefits to the company, such as the opportunity to substantially increase the current supply they have managed to output. Risk: GPA computer data backed up every other week Currently GPA backs up its computer data every other week. This is a problem for GPA because if their system crashes midweek before the backup is performed they have now lost all information input that week. For example, a tax organization found that backing up data was tedious and time consuming, so they decided to backup their data once a month. Unfortunately, their system crashed in the middle of tax season and when they went to recover their backup information they discovered it was old information before the current tax season; meaning they lost all the information on who has paid their taxes that particular year (Backing Up, 2012).4 If GPA does not take proper precautions they too could lose sensitive information that their business relies on such as shipment information, sales, and inventory counts. In addition, if GPA does lose their computer data, getting all the proper information back will be time consuming and is generally expensive. Overall, the frequency of this risk is a four because GPA needs to change their current backup routine. Also, the severity of the risk is a four because if GPA loses information from the prior week they may not be able to successfully fulfill their obligations to their clients. Treatment: Recommended that GPA change how often they backup their data. According to Backing Up Information (2012), It is important to develop a regular backup routine that reflects the frequency of change in data. If the computer is used daily, it is best practice to back up important files daily. 5 GPA uses their computer systems everyday; therefore, it is important to back up their data everyday. Overall, performing backups daily it will allow GPA to greatly reduce their risk of losing valuable information overnight or midweek due to an IT system malfunction.

4 Cyber Security: Guides for Backing Up Information. (2012). Dhses. Retrieved March 23, 2013, from http://www.dhses.ny.gov/ocs/local-government/documents/Backing-Up-InformationGuide-2012.pdf 5 Cyber Security: Guides for Backing Up Information. (2012). Dhses. Retrieved March 23, 2013, from http://www.dhses.ny.gov/ocs/local-government/documents/Backing-Up-InformationGuide-2012.pdf

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Risk: GPA computer data backed up onto one consolidated file. Presently GPA backs up its computer data onto one consolidated file, however, that can be an issue if for whatever reason there is a problem during the recovery process. Quite often a backup file may not have backed up properly or can be corrupt when attempting to open it. If that were the case GPA would be out of luck and out of their data. Overall, the frequency of this risk is a four because GPA is currently backing up their data on one file. Additionally, the severity is a five because if GPA were to find that single file damaged and corrupt they would lose all of their important information. Treatment: Suggest that GPA change their current IT department procedures to include performing multiple backups of their data. According to Backing Up Information (2012), Best practices require that organizations keep multiple versions of backups to increase the chance of retrieving damaged or destroyed information. 6 For GPA it is vital to have multiple versions of their data just incase the file is damaged or not properly backed up. Having multiple files will allow GPA to reduce the chance of losing the data important to their business operations.

Contingent Business Interruption

Risk: ChemPro is sole provider of critical components Currently GPA relies on ChemPro as their source of critical component parts for their products. Due to ChemPro working with the company day to day the frequency is a five. There are many benefits for choosing a single provider such as reliability and building a good relationship; however, there are also some negatives. The main issue with ChemPro being the sole provider is that GPA relies heavily on them for all their product needs. If for whatever reason a disaster was to happen and in turn ChemPro is unable to produce goods then GPAs business would suffer. Thus, the severity for this risk is a five. Additionally, according to Obinna Heche (2013), You will also have lesser negotiating leverage if you become dependent on a single supplier who supplies your needs. 7 The reason behind this is due to the supplier knowing that you are reliant on them, and therefore they can negotiate terms tailored directed at what they want without much of a fight from the buyer.

6 Cyber Security: Guides for Backing Up Information. (2012). Dhses. Retrieved March 23, 2013, from http://www.dhses.ny.gov/ocs/local-government/documents/Backing-Up-InformationGuide-2012.pdf 7 Heche, O. (2013). Advantages Of Having A Single Supplier. Articlerich. Retrieved February 28, 2013, from http://www.articlerich.com/Article/Advantages-Of-Having-A-SingleSupplier/227599 14

Treatment: Suggest that GPA keep ChemPro as their sole providers but negotiate a new contract with another entity should ChemPro fail. This will allow the second entity to step in so GPA can maintain their full level of production. The reason you want to keep ChemPro is because having a single supplier also has its advantages. For example, by having one supplier GPA is able to build a relationship with this supplier and potentially work together for future product design. Also, by only dealing with one supplier, administrative and shipping costs are less on the company. Rather than having to track and pay multiple companies and shipments, GPA only has to deal with one. Most important, however, may be the fact that GPA can be assured the quality of product is consistent with the last batch they received. According to Obinna Heche (2013), this makes the quality assurance of your company easier to conduct and you can expect to have lessor production difficulties and even less customer complaints. 8Due to GPA being a manufacturer of sports safety equipment and gear, having less customer complaints is a huge deal. By sticking with one supplier GPA will be able to build a healthy business relationship for future product needs and assure quality products are sold to its customers.

Building Ordinance
Risk: Tacoma, WA Site some buildings not up to code Currently, the Tacoma, WA Site is fifty years old and many of the buildings on the site are not up to code. When buildings are not up to code generally insurance premiums are higher because of the greater risk associated with insuring an out of date building (weaker infrastructure). The better the site or buildings are rated the cheaper the premiums will be. Due to some buildings at the Tacoma facility presently not being up to code the frequency is a one. Additionally, the severity of the issue is a four since some buildings are not up to code they are at a higher risk for damage or total loss. Treatment: It is recommended that GPA purchase an Ordinance or Law Coverage endorsement on top of their current Business and Personal Property policy. With this coverage form attached the policy will now step into place should any building structure suffer 40 percent damage from a covered caused of loss. At this point GPA will now be eligible to receive funds for the undamaged portion of the building, demolition costs, and the increased cost of construction when rebuilding the facility up to current codes. This endorsement will thus allow GPA to resume operations as quickly as possible should a loss occur because a new building will now be built without the problem of having to pay large out of pocket funds to ensure it built up to code.

8 Safety in the Workplace. (n.d.). Referenceforbusiness. Retrieved March 11, 2013, from http://www.referenceforbusiness.com/management/Pr-Sa/Safety-in-the-Workplace.html

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Risk: Seattle, WA Building not up to code The facility in Seattle, WA is 30 years old which can create a severe loss due to its age and its construction. If the Seattle facility receives damage to 40 percent or more to the building, GPA is required by the law to completely tear down the facility and build the entire building to code, but being that this can only happen once, the frequency is a one. When a building has to be rebuilt to current building codes, it can add 50 percent or more costs to a company9, bringing severity to a five. This is an issue for GPA because most insurance contracts have exclusions to additional costs that are a result from ordinance or law. Treatment: Recommended that GPA purchase Ordinance of Law Coverage endorsement on top of their current Business and Personal Property policy. With this coverage form attached the policy will now step into place should any building structure suffer 40 percent damage from a covered caused of loss. At this point GPA will now be eligible to receive funds for the undamaged portion of the building, demolition costs, and the increased cost of construction when rebuilding the facility up to current codes. This endorsement will thus allow GPA to resume operations as quickly as possible should a loss occur because a new building will now be built without the problem of having to pay large out of pocket funds to ensure it built up to code. Risk: Government Quarantine of GPAs Seattle, WA facility due to chemical contamination in vicinity There is a chemical plant located only 800 yards away, which brings risk of them having government quarantine for a chemical contamination. Due to the close vicinity of the Seattle manufacturing plant and the chemical plant, there is a possibility that during a government quarantine, GPAs manufacturing facility could be encompassed in the area of quarantine. The possibility of this is reliant on a contamination issue of some sort occurring at the nearby chemical plant. The frequency of this occurring is relatively low, a one. This one manufacturing plant is currently responsible for 95 percent of total production, which would place the severity at five. Treatment: Suggest that the Miami, FL location will be expanded and now not only consist of its own distribution but also its own manufacturing plant. This will eliminate the risk of a full stop in all production should the Seattle, WA location face a business interruption. The Miami, FL facility will now be able to continue full operations should something occur. Once the Miami, FL facility completes its expansion, both manufacturing plants can be responsible for roughly fifty 9 Dudey, P. O., & Malecki, D. S. (2008). Ordinance or Law Coverage: Code for Recoverty. Adjusting Today. Retrieved March 22, 2013, from http://www.adjustersinternational.com/ATpdf/3009_OrdinanceorLawCoverage_2008.pdf 16

percent of production unless one facility freezes production, which in that case the opposite plant will increase its productions in order to handle the failure of the other facility.

Leasehold Interest
Risk: Contractual liability for leasehold agreement outlet store in San Mateo, CA In order to conduct sales of out dated equipment, GPA has signed a lease for the outlet store in San Mateo, CA for the next eight years. Though the leasing company is in charge of the parking lot, landscaping, and sidewalk improvements, GPA is responsible for any improvements, inventory, and the rent of the building. Due to us only having agreed to a single contract the frequency is placed at a one. If a peril occurs within the facility, GPA is responsible to insure its own interest within the building. Right now GPA does not have any plan to insure this exposure and is taking on a big risk in order to cover the losses out of pocket, which places the severity at a five. Treatment: Propose that GPA purchase a Leasehold Interest Coverage Form for the San Mateo, CA building. One of the large risks that GPA faces is, if a covered peril were to occur, the difference in rent for the next eight years. For GPA this is estimated to be $192,000 alone. With the Leasehold Interest Form, GPA can insure their building that way they would be covered if a loss to the building were to occur. This policy also includes coverage for damage or destruction of any improvements and betterments that are added to the building.

C. Liability Premises and Operations

Risk: Steve Bells health. Steve Bells health has been declining rapidly since the passing of his wife 2 years ago. There have been several accounts of Steve collapsing at work and waking up without knowing how he collapsed or what he did that day. This is a problem for GPA because Steve has 15 percent ownership in the company and is their Chief Science Officer. Losing Steve could mean losing their knowledge base for future product-development and his ownership share in the company. The severity of this happening is a 5 because Steve was one of the initial four members of the group who designed this new GPA product and he is a much-needed asset to the team and the future of GPA. Due to the fact Steve has had multiple incidents with regards to his health, the frequency of Steves health is a 3. Treatment: Recommend purchasing Key Man Insurance and having someone shadow Steve Bell. Key Man Insurance is simply a life insurance policy on someone who is key to your business. 17

The company pays the Key Man insurance premiums and the beneficiary is the company. Essentially, should Steve Bell unfortunately die the Key Man Insurance policy will payoff the beneficiary (GPA). This money could be used to hire a replacement, or if necessary pay off debts, distribute money to investors, pay severance to employees and shut down the business if absolutely necessary.10 The other recommendation of having someone shadow Steve Bell is also important. The reason for this recommendation is should Steve Bell unfortunately die, GPA would already have someone mentoring under Steve Bell and learning what he does day to day for the business. This person could potentially replace Steve Bell or work alongside a new hire to complete the same job until normal operations could be resumed. For additional information related to Key Man Insurance please refer to Appendix N. Risk: Liabilities relating to the loading dock In most businesses, loading docks are a prime location for employee injury due to the high level of foot traffic. Injuries from loading docks account for 25 percent of all injuries in manufacturing and warehouse operations11. It is important for companies to identify potential hazards in the loading dock area and create strategies to minimize them. If an employee or an invitee is injured in the loading dock area, GPA becomes liable for the medical treatments in order to rehabilitate the injured party. Over the past few years, there have been numerous claims already filed that were related to injury from the loading dock area which classifies this risk as a three. Even though most employers carry Workers Compensation and General Liability coverage, there is still the possibility that the injured may seek for additional compensation through third party suits. During these situations the victims may choose to file a third party claim to seek compensation for medical bills, pain, suffering, and more. This makes the severity for this risk is a three because due to the extra costs arising from the need to defend in court. Treatment: Recommend that GPA enact stringent safety regulation in order to minimize the occurrence of such accidents. One of the initial safety procedures that should be implemented is to install safety barriers and clearly outline the edges of the dock in order to prevent accidental injury resulting of a slip and fall. There have also been documented cases of workers filing suit for injuries that occur from unloading products of delivery trucks as well as fatalities from vehicles falling off the edge. The primary cause of these injuries is the lack in employee training of safety procedures. For example, employees should be instructed to be caution of shifting goods while unloading incoming vehicles as well as be cautions of their surroundings. Risk: Injury resulting from equipment misuse In the past three years, nearly half of the claims have been a result from the misuse of 10 Lowe, K. (2002, October 7). Why You Need Key Man Insurance. Entrepreneur. Retrieved April 10, 2013, from http://www.entrepreneur.com/article/56068 11 Stone, S. (2012, March 3). How to Avoid Loading Dock Injuries. Warehousing Insights Material Handling Systems RSS. Retrieved March 10, 2013, from http://www.ciscoeagle.com/blog/2012/08/03/how-to-avoid-loading-dock-injuries/ 18

equipment. According to Occupational Safety and Health Administration (OSHA), approximately 100 employees are fatally injured, and approximately 95,000 employees are injured every year while operating trucks as well as forklifts12. These types of incidents make up the majority of the workers compensation claims, which puts the frequency of the situation at a five. This is costing GPA an enormous amount of money in terms of paying the claims and having employees missing work in order to recover from injury, placing severity at a three. Treatment: Recommend GPA to focus more on loss prevention and reduction rather than focusing primarily on insurance. The training and education of employees is ideal because it instructs them on how to properly use the machinery. Constant training in a form of a refresher course for employees should be mandatory in order to be up to date on safe machinery practices. The training should include topics such as how to operate the machinery as well as how to maintain it. Another way that can increase safety within GPA is by having safety checklists to help avoid hazards that can cause injuries, illness and fatalities. This can include things such as wearing proper protection for each task, making sure that employees follow proper steps when using forklifts, and ways of disposing of hazardous materials. Risk: Not having a Human Resource department Not having a Human Resource department at GPA means they do not have mangers and employees who specifically work on improving the interaction between employees and the company. This can be a good thing or bad thing depending on the company. In either case, since GPA currently does not have a Human Resource department the frequency of the risk is a five. According to Chris Miksen from Demand Media (2013), If you're managing numerous people, such as over 50, it may be difficult to employ a strategy to deal with each employee. If employees become frustrated with the company or their jobs become dissatisfying, production can drop and company revenue may plunge. 13 For GPA they are a midsized company with nearly 130 employees (potentially adding more with expansion). Therefore, by not having a Human Resource department they could not be communicating effectively enough with their employees to develop a healthy employer-employee relationship. Due to GPA potentially not having a good communication stream with their employees the severity of this risk is a three. Treatment: Decide whether or not an HR department is worth the cost for GPA. GPA has a few things to consider when it comes to establishing a HR department for their company. First is does GPA even believe they need a HR department. This will have to be determined by the managers and CEOs of GPA. If they determine that the current system works and GPA employees are successfully communicating with GPA then there is nothing to change. However, 12 Miksin, C. (2013). Advantages & Disadvantages of Not Having Human Resources.Chron. Retrieved March 16, 2013, from http://smallbusiness.chron.com/advantages-disadvantages-nothaving-human-resources-18696.html 13 Miksen, Chris. (2013). Advantages & Disadvantages of Not Having Human Resources. Chron. Available: Cited March 16, 2013. 19

if it is determined that GPA employees are not communicating as effectively as the managers and CEOs expected then adding an HR department will surely benefit them. Next, if it is determined that GPA needs to add an HR department they need to figure out how to finance it or if they can even afford to. According to Chris Miksen (2013), Money spent on human resources management and costs associated with human resources, such as employee programs and services, can amount to over $1,000 per employee. 14 Clearly, a $1000 per employee is not exactly cheap (especially when GPA has 130 employees). On top of the cost per employee there is the cost to manage and monitor the HR department. These options and considerations will have to be weighed by GPAs CEOs to determine whether or not they need and can afford to implement an HR department. Additionally, GPA could choose to outsource their HR department to a Preferred Employer Organization (PEO). PEOs are specialized in handling management of human resources, employee benefits, payroll and workers compensation. 15 This includes keeping current with employment laws and regulations which are always changing and could bring up potential legal issues. Thus, a PEO will allow GPA to focus on its core competencies so they can maintain and grow their business because they are taking care of everything a in-house HR department would without the stress of managing it yourself. To see more on what a PEO can offer you at GPA please see Appendix L. Risk: Possible pollution from manufacturing plant. As a manufacturing plant, possible pollution exposures are present from the raw materials that are used in the construction of GPA products. A majority of businesses have plans in place that dictate exactly how harmful pollutants will be removed once used. GPA currently has no plan in place therefore they are possibly contaminating their own manufacturing plant(s). In addition, there is also speculation that the land that the factory has been built on was already contaminated; however, this has not yet been proven. Overall, the frequency of this risk is a two because no pollution disposal plan is in place. The severity of this risk is a four due to GPA possibly having to spend time and money cleaning up their potential pollution exposure. Treatment: Urge GPA to integrate loss control(s) within the production cycle. A successful pollution prevention program focuses on reducing and eliminating pollution at the source. This can be done by changes in the materials used, processes, practices, and/or products. GPA could identify which of the materials used in the production process has the highest chance of environmental damage. The most successful pollution prevention programs are implemented into a firms overall risk management strategy from day one. Creating processes that are able to reuse some of the products or byproducts can reduce pollution during the construction process. One way of preventing pollution is to reduce the dragout during the process. Dragout is the amount of 14 Miksen, Chris. (2013). Advantages & Disadvantages of Not Having Human Resources. Chron. Available: http://smallbusiness.chron.com/advantages-disadvantages-not-having-humanresources-18696.html Cited March 16, 2013. 15 What is a PEO? (2013). Napeo. Available: http://www.napeo.org/peoindustry/ Cited March, 26, 2013.

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water that is dumped out of the factory during rinsing of the product. This can be done by slowing the rate of the withdraw racks in order to allow more chemicals to drip back into the process tank. Additionally, it is recommend that GPA install drain boards to minimize spillage between tanks. Installing more efficient machinery can reduce the amount of chemicals that GPA uses. By installing flow controls for the rinse process, GPA will only save money in water costs but also allow fewer chemicals to be released out of the system. Finally, if loss controls where to fail and there is spillage that causes pollution, it is recommended that GPA purchase a pollution insurance form in order to help pay for the restoration. Risk: Chemical distribution plant 800 yards from Seattle location poses possible contamination risk Having a chemical distribution plant near GPAs manufacturing facility can result in a large pollution exposure that the company may be blamed for. GPA has stated that there is a possibility that there are already chemicals in the ground, but the first phase of the environmental test has not shown anything. If any accident occurs on their premise such as a fire, it could result in the business and the surrounding area to be shut down due to government intervention and quarantining, including GPAs manufacturing plant. For GPA the frequency of this risk is a one due to it not happening yet but if it were to happen, the severity of it would be a five since their peril could result in a total shutdown of our operation. Treatment: Advise GPA to purchase an insurance policy in order to protect against pollution exposure. There is a possibility that the contamination around our premise is a result of the chemical distribution plants negligence to how it handles its inventory. GPA should consider beginning the next level environmental test to see exactly what possible chemicals are in the ground, and then see if there is a possibility of linking the contamination to the chemical distribution plant. This would allow for expenses for the clean up be placed on the chemical distribution instead of GPA. Risk: Risk of worker lawsuit coming back on GPA (Technician jacket incident) As a technician was inspecting a running machine, his jacket was caught on the pulley system in the machine. He was then pulled in and the machine broke his back, paralyzing him from the waist down. He was attempting to file a lawsuit on the manufacturer of the machine, however, they are denying all responsibility and claim GPA did not properly maintain the machine. The frequency is a two because this is not this is not reoccurring often. The severity of the risk is a four. It is a major lawsuit because he is no paralyzed and can no longer continue his everyday routine due to his injuries. It will also be very difficult to find a job that can be fully performed without the mobility of his legs. If the lawsuit comes back to GPA for not properly maintaining the machinery, they will face a substantial financial loss.

21

Treatment: Suggest that GPA provide proof that the machinery was properly maintained while in possession of GPA. Find documents of the prior times of machine maintenance with detailed reports on the findings of the inspections. Find out what regular maintenance or how often inspection is required by the actual manufacturer of the machine. Explain how those protocols provided by the manufacturer of the machine were followed, and that GPA is not liable for the injury or any type of negligence when it came to the machine. Risk: Old buildings increase chance of asbestos or mold. Due to some of the buildings being out of date there is the risk of asbestos in the buildings which is known to cause lung cancer and other serious illnesses. The severity for this risk is a four being that it can result in injury or death. The older buildings have a risk of containing material with asbestos due to the fact that it was widely used for its overall strength prior to the discovery of its negative health effects. Older premises that contain asbestos in their building material present a constant risk of inhaling of the asbestos molecules by all employees working in that facility, bringing the frequency to a four. Treatment: Advise that GPA examine old facilities in order to inquire if there is in fact asbestos or mold present in the building. GPA needs to take the necessary actions in order to prevent future injuries from occurring depending on the result of testing. Any material deemed to be harmful should be replaced immediately in order to prevent sicknesses and/or death of employees. Risk: GPA has no Risk Management department GPA does not have a department dedicated to risk management. This can cause severe problems in the future. It is important to have a risk management department in order for them to manage and assess the risk that comes with new projects in the future. It would also benefit in having a risk management department so that the recommendations we have made in our risk audit, can be closely monitored and have the new performance assessed and if need be modified. There could be more risk with every project that is accepted by GPA that the project will not be successful as a risk manager has not ran the numbers to ensure a positive NPV associated with the project. Treatment: Urge GPA to Contract a third party Risk Management Company. The Risk Management Company would evaluate any current and future projects GPA plans to implement in order to make sure they are making good project decisions. Having a risk management department increases the rate of success for the company by a substantial amount because they have the ability to accurately measure the risk associated with any project or company regulations. Risk Management is a proactive process and will therefore reduce the risk from future inconveniences.

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Risk: Ergonomic issues for GPA workers Workers on production lines often stand for hours at a time. Sometimes even in uncomfortable positions due to machinery and table height, size, etc. In addition to standing for long periods of time workers are often subject to repeating the same motion over and over. According to Assembly, work-related repetitive motions are a common source of serious disorders, such as tendonitis or bursitis. 16 In addition, heavy lifting is an evident problem at GPAs facilities, employees have been known to lift work related materials manually rather than use the lifts to save time. This resulted in injuries, which is something the employee and employer do not want. Due to GPA not having a fully ergonomic system for their production line employees each day they show up to work the frequency is a four. The severity is also a four in this case; workers have already sustained injuries due to these problems and cost the company time and money. Treatment: Install robotic arms in all manufacturing plants and require the use of weight belts. According the GPA, they believe installing the robotic lift in the Seattle location has resulted in saving them two lifting injuries in just the first year. Thus, by installing them in all facilities it should in turn reduce the number of lifting injuries that occur at each facility. Another thing to think about is machine and workbench height and size. Depending on each workers body type (being short or tall, thin or robust) they may not be comfortable at their current workstation. Fortunately, GPA can choose to invest in adjustable workbenches and reconsider the employees workstation layout (where tools are located, height, distance, etc.). This will allow employees to come in and adjust their workstation to a proper height for them, which allows the employee to have proper form when working on the production line. By installing adjustable workbenches and reorganizing the employees workspace the employer is able to reduce injury and increase employee moral thus, increasing their productivity. Lastly, GPA should consider hiring an ergonomic consultant if they deem it necessary to review all of GPAs facilities in full. Risk: Possible Environmental Contamination in Seattle, WA facility Environmental groups have speculated about the belief of possible contamination at the facility. No evidence has been presented supporting this idea and phase one of contamination testing was completed with no trace of chemical or metal contamination, putting frequency at a two. Environmental contamination can lead to the shutdown of the entire facility and/or law suits against the company if they are to blame. The severity, if this were to occur, would be dramatic and results in a five for severity. The facility being shutdown would be a very severe loss due to the fact that they are in charge of 95 percent of full productions. If the production capabilities of 16 Redcross, E. (2011, May 20). Workstations: Is Your Assembly Line Ergonomic? Assembly. Retrieved February 26, 2013, from http://www.assemblymag.com/articles/89033-workstationsis-your-assembly-line-ergonomic

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this facility where to shutdown, GPA would not be able to produce enough products to maintain their sales. Treatment: A detailed multi-phase contamination test will be completed on the premises. Once completed it can be dealt with from there, either all doubts will be eliminated, or the company will have to take the next step in treating the contamination in order to have their facility up and running again without any indication of contamination to the environment. Risk: Safety of Employees on Manufacturing Floor Safety is always an issue for manufacturing companies. Floor employees are working with or near big machines and it is important that each employee does his/her job safely. According to the case information many of GPAs long tenured employees have forgotten safety measures. This poses an additional issue for GPA because it is known many of their employees are not practicing safe work habits. These unsafe practices each day can increase the number of work related injuries; therefore, the frequency is a four. Additionally, the severity is a three because of the potential workers compensation claims associated with floor employees not practicing safe work habits. Treatment: Recommend that GPA begin conducting safety audits and offer incentives to employees for practicing safe work habits. According to Safety in the Workplace (2013), Because employees who "know better" often continue to engage in accident-causing behavior, many employers have redirected their focus from accident prevention to the prevention of unsafe acts that could lead to an accident (p.1). If GPA starts conducting safety audits this will allow them to pinpoint employees who think they know better and are not properly performing their job. Once GPA has identified these employees through the use of safety audits they can then decide how to get the employees to properly perform their job. Secondly, GPA should offer an incentive program for their employees. As stated before many of GPAs employees who are trained often forget proper safety techniques. However, according to Safety in the Workplace (2013) One way to mitigate this problem is to implement a safety incentive program. Such programs aim to motivate safe behavior by providing workers with incentives for avoiding accidents. (p.1). By implementing an incentive program GPA employees will have a reason to make a conscious effort to perform their job correctly. If GPA has a certain number of workdays without an accident each GPA employee will receive a reward such as a gas card or even cash bonus. These rewards will surely motivate GPA employees to get the job done safely which will reduce the workers compensation costs for GPA as a whole. The only concern with offering incentives is making them to great or too small, GPA needs to pick a incentive that drives employees to strive for safety but not enough to keep them from reporting injuries that occur on the job.

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Risk: Risk of technician getting injured while inspecting the machines (running) The technicians have the exposure to injury when they are inspecting machines while they are running. The technician has to be close to the moving parts in order to inspect the machine, and while it is running there is a massive risk of injury. The machines are not inspected often which places the frequency of the risk at a one. If a loss where to be suffered the severity would be a four because the loss could be anything such as minor injury, amputation of a limb, or even death. This liability can greatly affect both the financial strength of the company and also its reputation. Treatment: Advise GPA to enact safety protocols for the technicians inspecting the machinery. They are to be trained in the proper techniques to inspect the machines that will minimize the risk of injury. These safety techniques training will have to be completed on a semi-annual basis to insure that the technicians follow the proper safety protocol. Put safety guards in place for the running machinery that acts as a barrier to not let foreign objects into its moving parts, but that is transparent, and allows the technician to accurately assess the machinery. Risk: Risk of third party sales people demonstrating equipment on GPA property Sales demonstrations have been presented on GPAs premises, and in doing so, this increases the risk of injury. There has been a case where a sales person was demonstrating a forklift to GPA, and in doing so, as he was moving a pallet, he backed up into the manufacturing line and injured two employees. Sales demonstrations are not done often therefore placing the frequency at a two. Injuries can occur due to negligence during a sales demonstration, which would result in possible law suits besides workers comp claims. The severity is a three. Treatment: Urge GPA to make employees aware of any changes on the typical workday. If any sales demonstrations are to be done, all workers must aware of when and where they will be on performed. Sales demonstrations are to be done in a designated area with minimal workers around. By notifying all employees of when and where demonstrations will be performed they will be more aware of their surroundings thus reducing the overall risk associated the salespersons product demonstration. Risk: Miami manager potentially taking good employees after he is fired. The Miami manager is well known by his colleagues at the Miami location and has threatened to take all the good employees with him if he is let go. This poses a clear risk to GPA because they could potentially lose some of their best employees in Miami. This can only happen once the Miami manager is actually fired; therefore, the frequency is a one. Additionally, the severity is a two because GPA could potentially a few top employees.

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Treatment: Recommend that GPA conduct a meeting with its Miami employees and let them know of the potential changes being made at their facility. The employees will be enlightened on future changes being made such as firing the Miami manager, making Miami a manufacturing facility, and bringing in the manager from India to oversee the facility. By informing the current Miami employees of the changes soon to be made it may entice them to stay regardless of what the Miami manager says. Hopefully it will be clear to most of the employees that GPA is planning to grow with or without the Miami manager and should they stay and work they also will have a chance to grow. Risk: New Outlet Store is a test pilot in San Mateo, CA GPA is currently opening a new Outlet store in San Mateo, CA, this will be their first Outlet Store. There is the risk that the storefront is not a success, which places the frequency at a four. With this Outlet store GPA will have the capability of selling their outdated products along with any excess supply of the up-to-date products. The outdated products are to be offered at discounted prices rather than having sunk costs with products that are inferior. The severity of the situation is a three. Treatment: Urge there to be supervision of the performance of this location. The San Mateo, CA outlet stores efficiency and sales are to be closely monitored to ensure adequate performance. There will also have to be loss control provisions set in place to reduce the cost of loss. Marketing the new store front will also be required in order to make the consumers aware of both the new store location and also the opportunity of purchasing discounted products from the previous years while still offering current products in the same location. Risk: Employees bypassing safety guards According to the information given on GPA many of their employees are bypassing safety guards in order to complete their daily tasks quicker. This poses an immediate problem for GPA because the chance of injury while on the job is greatly increased. When employees are injured it then becomes a liability for GPA, which can cost them a lot of time and money. Due to the fact GPA can suffer some monetary damages the severity is a three. Additionally the frequency is a four because it is known GPA employees are currently bypassing machine safety guards to get their work done faster. Treatment: Suggest that GPA hold quarterly safety meetings to stress the importance of the safety guards on machines and go over proper techniques when operating machinery. Most people would think installing safety guards on each machine would solve the problem and reduce GPAs overall risk, unfortunately, that is not the case. According to Dont Bypass (2013), No matter how well designed your guards might be, they are totally useless if your workers try to

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bypass them. 17 When workers are determined to get the job done faster, safety guards will not stop them. It is very easy for an employee to tamper with the safety guard on any given machine in order to make the process quicker. Therefore the only way to combat the problem is to emphasize to your employees that bypassing guards and tampering with machinery is just too risky (Dont Bypass, 2013).18 By holding meetings every three months GPA will hopefully be able to alter the majority of its employees attitudes towards safety guards and educate them on proper machine operating techniques. If GPA can successfully educate its employees they should see less and less issues arising from the bypassing safety guards. Risk: Risk of outsourcing and manufacturing in other countries. There is a risk for outsourcing because the regulations for that country may not coincide with the regulation in the United States; this can be anything from how employees are treated to the types of materials used in the products themselves. It is also difficult to instill a quality control in another country; this prevents the consistency of high quality products/material, placing the frequency at a five. There is also the lack of supervision that is typically employed in GPAs facilities. Shipment containers are arriving with both damaged and missing products. Full orders are not always being received, therefore making the severity a three. Treatment: Urge that GPA minimize outsourcing risk by examining and negotiating current contractual provisions. Negotiate a secondary contract with another company in a different country in case the first contract falls through, or if the primary company is unable to fulfill GPAs needs. Recommended to close down the manufacturing plant in India and expand the Miami, FL location to also consist of a manufacturing plant. This will result in correct standards, quality control, and overall supervision for the company. Risk: Employees downloading software at work GPA employees are currently able to download whatever they wish while at work and on work computers. This poses a problem to GPA because what employees download can negatively affect GPAs Information Technology (IT) system(s). For example, as stated in another risk a GPA employee downloaded a bad file and caused GPAs computer system to shutdown for nearly two days; suspending company email capabilities and their inventory management system. This alone caused problems for GPA and it took GPAs time and money to get the system back up and running. In addition when downloading bad files some may hog company bandwidth (slowing overall internet speed), cause security threats (such as the virus example above), and leave GPA looking at a copyright infringement lawsuit (Norton Dana,

17 Don't Bypass Machine Saftey. (2013). Okhighered. Retrieved March 15, 2013, from http://www.okhighered.org/ssherc/newsletters/osrhe/machine-safety.html 18 Don't Bypass Machine Saftey. (2013). Okhighered Retrieved March 15, 2013, from http://www.okhighered.org/ssherc/newsletters/osrhe/machine-safety.html 27

2002). 19 Overall the frequency of this risk is a five because employees are currently allowed to use the interest however they see fit. Additionally, the severity is a three because it can cost GPA time and money. Treatment: Recommended that GPA enact a company Internet use policy. This policy will spell out for the employees exactly what is permitted and not permitted while on company computers. As stated in a previous risk GPA should have their internet use policy in the employee handbook so that new hires immediately know the rules and have no excuse not to follow them. The consequences for not complying with GPAs Internet use policy need to be clearly spelled out and strictly enforced so employees will take it seriously. Such penalties for not following the policy can be suspension or firing depending on the situation. In addition, it is a good idea to put in the policy GPA has the right to monitor company computer system in full, including visited websites, chat rooms, news groups and emails (Norton Dana, 2002). 20 By putting this in the Internet use policy GPA employees will know that at any given time GPA can retrace their computer usage, which in turn will deter employees from downloading inappropriate software. Risk: Cost to do business with China may become cost ineffective for raw materials. In the recent years the Chinese economy has been growing to the point that some analyst are considering that it will surpass the American production economy. For GPA the frequency of this risk is a three because the prices of labor have been increasing constantly over the past few years. For GPA, this is an issue because at that point it may be ineffective to have our raw material come from China, when GPA could contract a different country and have the goods at a cheaper rate, which places the severity at a four. In China, costs of labor are rising in many areas. Labor costs in China have been rising about 15 percent a year according to the China-Briefing21. Treatment: Suggest GPA switch to a new supplier. After a certain amount of increase in the price of the raw materials, it may not be economically feasible for GPA to purchase. India, Indonesia, Vietnam, and Thailand are now becoming attractive alternatives for manufacturing companies to 19 Norton, D. (2002, April 10). Update Your Internet Use Policy To Stop Download Abuse. TechRepublic. Retrieved March 23, 2013, from http://www.techrepublic.com/article/updateyour-internet-use-policy-to-stop-download-abuse/1039353 20 Norton, D. (2002, April 10). Update Your Internet Use Policy To Stop Download Abuse. TechRepublic. Retrieved March 23, 2013, from http://www.techrepublic.com/article/updateyour-internet-use-policy-to-stop-download-abuse/1039353 21Yenamandra, T. (2011, April 19). Magazine and Daily News Service. China Briefing News. Retrieved February 26, 2013, from http://www.china-briefing.com/news/2011/04/19/the-chinaalternative-india.html 28

buy raw materials from. Thailand, for example, grew in manufacturing by 63 percent in 2012 according to Wall Street Journal.22

Products
Risk: Counterfeit products in Haiti Currently GPA is involved in a subsidizing program in which they provide their sports gear at or near cost to less privileged countries, particularly Haiti. One GPA salesmen has reported seeing numbers counterfeit products in some areas since doing business here. Due to this fact, the frequency is a two. Clearly, having counterfeit products from your company out in the world can pose some legal issues. For example, if anyone happens to be using counterfeit GPA protective gear and then suffers an injury, that person looks to sue GPA not the counterfeit dealer. GPAs name is on the product and therefore the customer deems them responsible for the improper protection or poor quality of the good regardless if they actually manufactured the product or not. According to Anti-Counterfeiting (2013), It won't matter that the buyer is later made aware that they used a counterfeit product. You'll take the blame, and suffer the damages from the ensuing media frenzy. 23 Counterfeit products do not alter the counterfeiters reputation is alters the actual companies reputation (your label, your problem). Due to this fact the severity of counterfeit products being produced in less fortunate countries is a four. Treatment: Recommend that GPA stop distributing their products to the less privileged countries. Although this does increase GPAs market share and does in fact help those who are in need, the risk of product liability claims falling back onto GPAs shoulders is to great. In fact, Third world countries continue to provide cheap, unregulated laborers to counterfeit items of substandard quality (Anti-Counterfeit, 2013, p. 1). 24 So if GPA plans to continue providing protective sports gear and apparel to less privileged countries they can always expect counterfeits to be readily made wherever they do business. For additional information on Anti-Counterfeiting please see Appendix O. Risk: Risk associated with hazardous materials coming from China In the past there has been multiple cases reported of hazardous material used by China in the production of goods for companies in the states. The use of hazardous materials can result in a severe law suits against GPA. There have been instances in the past of China using lead paint in the manufacturing of childrens toys, which resulted in severe sicknesses for children and 22 Zhang, Y. (2013, January 16). China Begins to Lose Edge as World's Factory Floor. The Wall Street Journal. Retrieved February 26, 2013, from http://online.wsj.com/article/SB10001424127887323783704578245241751969774.html 23 Anti-Counterfeiting Programs. (2013). Kessler. Retrieved February 28, 2013, from http://www.investigation.com/anti_counterfeiting.htm 24 Anti-Counterfeiting Programs. (2013). Kessler. Retrieved February 28, 2013, from http://www.investigation.com/anti_counterfeiting.htm 29

lawsuits for the company who is responsible for the toy. This was done because some materials are cheaper and/or easily accessible compared to other materials which may be expensive our difficult to acquire. This is not a current issue so the frequency of this is a two. Being that this is not an issue that is currently occurring, but rather a risk that will always be present due to the fact that GPA is not the ones performing quality control on the materials before they are used. Due to the severe lawsuits that GPA could face, the severity of this would be placed at a four. Treatment: Suggest that GPA instill a quality control inspection of all materials that will be used for production prior to their use in the manufacturing plant. This will be done in order to prevent use of hazardous materials in the manufacturing facilities. Also perhaps consider switching the supplier of these materials to a different country which does not have a history of this problem. An example of a different country to use would be Singapore, which does not have a history of the use of hazardous material without the knowledge of the company purchasing their products. Risk: Injuries resulting from Repetitive Motion Tasks Machine operators and assembly line workers often perform the same movements day in and day out. These motions can result in serious injuries over time and are known as repetitive motion disorders (RMDs). According to Assembly (2013), RMDs and other musculoskeletal disorders are among the most prevalent lost-time injuries and illnesses in almost every industry. Theyre also the most costly. 25 If an employee develops an RMD that requires surgery GPA can expect to pay even more. GPAs workers compensation claims will increase with each RMD. Therefore, they will have also an increase their insurance premiums costing them extra money. Additionally, the employee will more than likely miss multiple days at work when burdened with a RMD. This leaves GPA without a worker and now the need to find a replacement. Due to RMDs being costly and time consuming the severity is a four. Additionally the frequency is a five because GPA employees are performing these movements everyday. Treatment: Recommend that GPA begin holding training sessions quarterly to ensure the employees know proper ergonomic techniques and establish an incentive program. As stated previously an incentive program is a great way to motivate employees and get them focused on safety. Each day without an accident means one day closer to receiving an incentive bonus. For employees this may mean a gas card or a cash bonus. Additionally, by holding training sessions every three months it will keep employees memory fresh with proper ergonomic techniques. These sessions will cover proper lifting and opening techniques in order to avoid bad repetitive motions, which increase the chance of employees developing RMDs. The better an employees form while working equates to less strain put on their muscles and body. Overall, by implementing 25 Redcross, E. (2011, May 20). Workstations: Is Your Assembly Line Ergonomic?Assembly. Retrieved February 26, 2013, from http://www.assemblymag.com/articles/89033-workstationsis-your-assembly-line-ergonomic 30

quarterly training sessions and offering an incentive program it will keeps employees focused on safety and proper form, which will hopefully save GPA money in the long run. Risk: Product Liability GPA is a manufacturing company, which produces sports protective gear and apparel. This protective gear and apparel may seem harmless but a company can never predict when their product may fail or foresee how each consumer will use their product. In fact, according to the RJ Ahmann Company (2013), Any business that manufactures or distributes a product to be used by the public faces potential manufacturing liability lawsuits. 26 (p.1). Due to the fact any manufacturing company can be the target of product liability lawsuits the frequency of the situation is a two. In addition to the manufacturers being the target of legal lawsuits, these lawsuits can also cost a lot of money. A given companys legal fees can be substantial whether the courts verdict is innocent or guilty (RJ Ahmann, 2013).27 For this reason, it is important that GPA properly protects and prepares for potential product liability suits. Overall, the severity of the risk is a five because being ill prepared to combat product liability suits could leave a company out of revenue and therefore out of business. Treatment: Recommend that GPA consider their potential product liability exposure and have a plan in place to protect their assets from a possible product liability lawsuit. First and foremost GPA should hire some legal help to determine whether or not their current warnings and labels are sufficient for use. By law all manufacturers have a duty to warn. 28 It is very important to determine whether or not the warnings and labels are adequate because should a liability issue arise the person filing suit against GPA will likely try to claim that GPA did not properly warn them of the issue. Next, GPA should consider implementing some preventive techniques such as assessing the potential risks of their finished products before it is sent out for sale. Proper risk assessment of their finished products can highlight some of the potential issues GPA may encounter once the product is in the consumers hands.29 Thus, this testing will allow GPA to mitigate the risk of consumers misusing their product because it can identify potential flaws in the product design or material that could lead to improper customer use before they get their 26 RJ Ahmann Company. (2013). Insurance For Manufacturing And Product LIABILITY. RJA. Retrieved March 23, 2013, from http://www.rja.com/expertise/coverage/manufacturers-productliability 27 RJ Ahmann Company. (2013). Insurance For Manufacturing And Product LIABILITY. RJA. Retrieved March 23, 2013, from http://www.rja.com/expertise/coverage/manufacturers-productliability 28 Ross, K. (2011). Warnings and Instructions: Updated U.S. Standards and Global Requirements. Product Liability Prevention. Retrieved April 3, 2013, from http://www.productliabilityprevention.com/images/DRI_Fall_2011_Strictly_Speaking_Warnings .pdf 29 Ross, K. (2009, Spring). Foreseeability: A Critical Analysis in Minimizing Pre-sale and Postsale Liability. Product Liability Prevention. Retrieved April 3, 2013, from http://www.productliabilityprevention.com/images/DRI_Foreseeable_Spring_2009_KRoss_.pdf 31

hands on it. If GPA can prove they did everything possible to reasonably foresee all product use and misuse before releasing the product they will have a strong defensive case in court. Last but not least, GPA should be aware of what to do should their products cause harm or damage to consumers. If a lawsuit is filed against GPA due to their product causing damage, the CGL policy we have recommended will step into place. The CGL policy will cover all legal fees associated with the lawsuit against GPA whether they are at fault or not. As mentioned earlier this is a great benefit because legal fees can be costly regardless of if the final decision in court is innocent or guilty. It is also important to note that should a problem arise GPA needs to handle it as quickly as possible. The sooner GPA can remedy the customers problem, the less complicated the claim will be. By reacting quickly to product liability issues it will create a good reputation for GPA rather than a negative one. We believe between the CGL policy coverage and implementing our recommended loss control techniques GPA will greatly reduce their overall product liability exposure.

Auto
Risk: Increased Auto insurance premium GPA has seen their auto premium increase nearly 210 percent. This is a concern for GPA because they do not want to spend more money than they have to on auto insurance premiums. The extra money being spent on the auto insurance premiums can be used elsewhere; for example, future product development or improvements to GPAs facilities. The frequency and severity of this particular risk is a three because right now GPA is spending too much on auto insurance premiums and the problem is occurring everyday. Treatment: Suggest that GPA negotiate with its current automobile insurance carrier to see where they can potentially save money. The main thing is to request a higher deductible. According Laura Coffey (2013), By bumping your deductible up from $200 to $500, you could lower the cost of your collision and comprehensive coverage by 15 percent to 30 percent. 30The higher the deductible is the lower the cost of each payment from the insured because they are choosing to retain a higher amount before the insurance policy will step into place. This will surely reduce the cost to GPA month to month when paying premiums. Additionally, GPA should ask their automobile insurance carrier if they offer discounts for having safety gear in the car, such as alarms, seatbelts, airbags, and GPS systems. If GPA can prove to the insurance carrier they have safety gear in place on every company vehicle they may be able to save even more money on their premiums because they are better protected from a loss.

30 Coffey, L. T. (2007, July 25). How to reduce your auto insurance premiums.TODAY.com. Retrieved March 22, 2013, from http://www.today.com/id/19838230/ns/today-money/t/howreduce-your-auto-insurance-premiums/ 32

Risk: Increased travel cost due to inefficient company vehicles There are currently two vehicles being offered for employees, neither of which fuelefficient. The vehicles offered have the capability of transporting large amounts of goods, but not all employees transport goods. The current options are not realistic for the other employees and simply result in higher gas expenses. The trucks are not convenient for employees whom are simply traveling from point A to B with no cargo. These vehicles come with extra expense due to their towing capabilities. The frequency of this is a four because this is an everyday occurrence. The severity is a three because there is just a higher gas expense with no reason. Treatment: Propose that GPA add sedans to the company car options for employees. This will reduce gas expenses every month. The sedan can have smaller motors because it is not required to haul cargo. There is also the option of obtaining hybrid vehicles This will further reduce the overall cost of gas. By simply adding a vehicle with good miles per gallon, all employees whom are not required to transport goods will no longer have be required to drive trucks with higher gas consumption. Risk: Allowing truck drivers to third party contract GPA truck drivers are allowed to contract out in order to avoid dead-head trips. The truck drivers deliver their shipment, but then rather than returning with an empty truck, they can contract out and perform a delivery for another company while using the GPA truck. This is done relatively often and in turn places the frequency at a four. If the driver were to be involved in an accident the damaged truck would be the liability of GPA. This brings the risk of a lawsuit against your employee if certain protocols where not followed during the delivery of the third party contract. The severity of a loss like this would be a four. Treatment: Advise GPA to no longer allow third party contracting in order to reduce the risk of a severe loss. By doing this the truck drivers are to be on direct routes during deliveries. They will no longer have a need to go out of the way and delay the time in returning, which also reduces the amount of time that these drivers actually spend driving. Drivers are to complete their delivery and return directly back to the GPA facility with an empty truck. Another option for GPA is to purchase a Motor Truck Cargo Carriers Coverage Form to insure the contents of the vehicles while they are contracted out. With this coverage, the $165,000 that GPA was forced to pay out of pocket for last years incident would have been covered by the insurance company instead.

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Risk: Family members of employees using company vehicles The purpose of company vehicles is so that company employees can use them for work related everyday processes. The employees are allowing both their spouses and children (of driving age) the use of company vehicles. The vehicles are typically being used for work, so there is not much opportunity for others to drive the vehicles, which puts the frequency at a one. Being that its company vehicles in discussion, GPA is liable for the vehicles regardless of who is driving, even those whom are not approved of. The company faces the risk of loss whether or not the employee is driving because family members are using the vehicles. This increases the severity of the company to a four. Treatment: Recommend that GPA require employees to sign a contract that is stating the company is only responsible for any damages if the employee himself/herself is driving at the time of the loss. This contract will state that the employee himself/herself is accepting full responsibility for all losses if anyone other than himself/herself is operating the company vehicle. This will reduce the risk of the company so that GPA is only liable when this agreement is being followed, and relieves them of the risk otherwise.

Advertising
Risk: Steve Bell posts company and product info on Internet Steve Bell has been posting both company and product information on the Internet. The frequency of this issue is a two. This is a problem due to the fact that there is a risk of him revealing sensitive information to the public. None of the information he posts online is screened and is therefore posted with no permission. This can be a severe issue if sensitive information about a product is released. If there are posts about his opinion on products or possible product upgrades that might be done in the future, then it runs the risk of other companies taking our ideas, or his opinion of the products can change the publics point of view on the product. This places the severity at a four. Treatment: Suggest that Steve Bell is required to sign a Non-Disclosure Agreement. After signing the agreement, he will not have the legal capacity to post any company relevant information online. In signing the agreement he will be stating that he will no longer post any company information online unless he seeks the proper permission and receives their approval. Risk: Risk of employees taking their kids to work (Take your child to work day incident) Taking your kids to work is a great way to educate the employees children to what their parents do within the company. This event only occurs a single time per year, which brings the frequency to a one. It also shows the employees that GPA is a family oriented company that 34

Employment Practices

cares about the relationship of the family. However, when inviting small children into a facility new risks arise that the company and the insurance company may not want to take on. In the previous year there was an instance where one of the employees children was seriously injured because the father was trying to teach his son how to perform his daily tasks. As a result, the child was injured and the GPA saw a loss which ended up costing the company $500,000, this brings the severity to a four. This incident should open the eyes of GPAs management team to how some of the good faith events that are held, expose the company to unforeseen liability claims. Treatment: Suggest GPA to create procedures for employees to follow when children are on site. The first thing is to educate the employees of the dangers in having non-trained personnel near moving machinery. One of the things they can do is prohibit invitees access to the production floor while the facility is operating. If they want to show their family exactly where they work, it needs to be either at a non-operational time or at a safe distance. Also under no circumstance should they allow family members to perform operational tasks that they are not trained to handle. It is an extremely risky situation for the company, especially one that has already had this issue occur and result with an injury and pay out. If an employee decides not to follow the rules that are set by management, there should be repercussions to their decision ranging from reprimanding to firing, depending on how severe the offense was. Risk: Unsafe practices in India Concerns have arisen recently due to the employment practices in the manufacturing plant in India. These unsafe practices, although in India and not in the United States, still have severe consequences for GPA as a whole. The frequency of this occurrence is a five because these are everyday practices in India. The facility in India is responsible for five percent of the company production and therefore has a direct relationship with GPA. The unsafe practices can be brought to light and result in detrimental law suits against the company and also a dramatic decrease in the companys reputation for allowing the poor regulations. The severity is placed at a four. Treatment: Option A Suggest GPA stop productions in India, and expand the Miami, FL distribution center to also include a new manufacturing center. The cost of the new manufacturing equipment would be $200,000, but would have the capability of producing one hundred percent of GPAs finished product supply. By doing this the company can ensure proper employee practices, without having to be concerned with international shipping, and it will also be in a distribution facility, so the final products can go directly from the Miami manufacturing/distribution facility to the consumers.

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Treatment: Option B Recommend that GPA enact new safety regulations that must be followed in order for that facility to continue production. These safety regulations will entail semi-annual safety training and a floor supervisor to be present at all times of production. The floor supervisor will be responsible to make sure all safety regulations are enacted. Risk: GPA has no driver-screening program Currently GPA has no driver-screening program. By GPA not having a pre-screening program they will not be able to detect drivers who are unfit for the job and potentially hire drivers that will cost GPA time and money. This is an issue because according to Dixon Insurance (2013), an employer must perform a pre-employment background check on the driver as mandated by the Federal Motor Carrier Safety Administration (FMCSA). 31Due to GPA having no pre-employment screening for their drivers the frequency is a 5. Additionally the severity is a 3 because of the potential liability assumed by GPA due to not having a driverscreening program. Treatment: Recommend that GPA implement a pre-employment screening program for their drivers. Each and every driver needs to be put through the same background check to ensure GPA is hiring good drivers. Once a driver-screening program is put into place GPA will be able to identify drivers who are suitable for the job and those who are not. Implementing a driverscreening program will allow GPA to make smarter hiring decisions and therefore reduce their potential liability from the get go with their drivers. Risk: Office Employees not using ergonomic keyboards and mice GPA faces a serious risk of future losses in productivity, workers, and an increase of claims that arise from musculoskeletal disorders due to their employees using non-ergonomic office equipment. This equipment is used on a daily basis, which places frequency at a five. According to a study done by the U.S. Department of Labor, on average it takes workers 28 days longer to recover from carpal tunnel syndrome compared to the time it takes for the workers to recover from amputation or fractures, this places severity at a three32. This results in longer payouts of worker compensation, which places severity at a three.

31 HireRite. (2011, June 9). $581,000 Verdict in Truck Crash Underscores Importance of Driver Pre-Employment. Dixon Insurance. Retrieved March 11, 2013, from http://www.dixoninsurance.com/driverscreen.html 32 U.S. Department of Labor Occupational Safety and Health Administration. (2000). Ergonomics: Study of Work. FOP. Retrieved April 3, 2013, from http://www.fop.org/downloads/OSHA%20Ergonomics.pdf 36

Treatment: Suggest GPA to enforce the use of the ergonomic office equipment. Training and education programs will increase safety awareness, which will help understand the reasoning to why the management team decided to use ergonomic office equipment. GPA should dispose of all of the old equipment immediately in order to insure employees use the proper equipment. Risk: Current training programs may not be satisfying OSHA requirements. It is important for GPA to follow requirements set by OSHA in order to prevent a shutdown of their business. OSHA has requirements in place that mandate the amount of time an employee can go without retraining depending on the task. This is a serious risk for GPA because their current training processes do not meet the OSHA requirements. This risk is present every day which brings the frequency to a five. This would cause a temporary shut down of operations until the requirements have been met. If a temporary shutdown were to occur, the losses would be substantial and as a result the severity of this risk is a five. Treatment: Propose that GPA immediately adapt their training methods to match the requirements that are set by OSHA in order to prevent a shutdown of operation. Some examples of OSHA requirements would be annual training all employees in emergency response plans, standard operating procedures, and how to handle emergency situations. In addition, forklift operators need to have formal instruction, hands on demonstration, and an evaluation of performance every three years or when an accident/near-miss occurs.33 Risk: A loss occurring due to part-time employees not being CPR trained Only full time employees are currently trained to perform CPR, this is a risk for the firm because not all employees are trained in proper CPR techniques. Serious injury and/or death can occur if all employees are not properly trained. This can severely impact the company in terms of their insurance policies, the payment of benefit to correct the loss, as well as affect morale of the workers. As a result, the risk is given a frequency of two and a severity of two. Although you have not had a loss due to the part-time employees not being CPR trained, GPA should address it because the repercussions can be detrimental. Treatment: Recommend GPA to extend the mandatory training programs to also include part time employees. Companies may believe that part time employees should not have the same stringent training methods as full time employees because of the high turnover rate, but the cost of training would be substantially less compared to having to pay out for a fatality. There is also a possibility of a claim arising if a part time employee where to perform a botched version of CPR causing damage to the injured persons body due to the lack in training. Those types of claims 33 OSHA Training Requirements. (n.d.). Training Today. Retrieved March 23, 2013, from http://trainingtoday.blr.com/employee-training-resources/OSHA-Training-Requirements 37

could be prevented had training was extended to part time employees that attempt to perform CPR. Risk: Insufficient training of floor employees at the Seattle location A large number of incidents that are reported to insurance companies can be reduced with proper training of its employees. This results in lower premiums due to the reduction in number of claims occurring. With proper training and annual retraining of employees, GPA can increases productivity, safety, and reduce hiring the cost of Human Resources to rehire for positions of unsuccessful workers. The direct cost of replacing an employee can reach as high as 50 to 60 percent of their annual salary.34 The costs can consist of new hires compensation, hiring managers time, and orientation programs. However, if you add in the eventual bill, it can add costs from 90 percent to 200 percent of their annual salary35. Because of these high costs over time, the severity of this risk is a four. The eventual bill will consist of delays in production and customer service, loss of clients that would have been acquired had the employee stayed, disruptions to team work, training costs such as on the job training and most importantly productivity loss as the new employee hire must masters their job. The frequency of this risk is a five because there is a high probability that a majority of GPAs employees have not received adequate training for their jobs. Treatment: Urge GPA to set up topics that closely follow the companys goals. After the completion of training, the employee should be able to return to the workplace with a clear understanding of how the training is going to improve their productivity, efficiency, and safety. Propose that GPA should have retraining at least once a year in order to re-secure safety procedures that must be followed. By having better and a more efficient training program, trained employee do not need to be under tight control and supervision as they are aware of how to perform a job properly and safely.36 They are also more likely to perform at a higher efficiency due to the optimizing and the utilizing of materials, tools, equipment, and other resources. Trained employees have fewer rates of absenteeism and turnover; In return, this will cut cost for GPA throughout the business. When training their employees, GPA must first identify the training needs for the company and create programs that are best suited for the specific needs. Get a trainer who is well educated in the subject and the training should be delivered in a way that the employees do not lose interest in the correct procedures. Prepare the trainee by telling him/her why he/she is being trained. Explain and demonstrate the operations to the trainee so that they have a better understanding of how they should perform their duties. When they employee is able to show that the job can be 34 MindFlash. (2012, June 18). Why Retaining Current Employees Is Cheaper Then Hiring New Ones. MindFlash. Retrieved February 26, 2013, from http://static7.mindflash.com/wpcontent/uploads/2012/06/12.06.18_Employees.png 35 MindFlash. (2012, June 18). Why Retaining Current Employees Is Cheaper Then Hiring New Ones. MindFlash. Retrieved February 26, 2013, from http://static7.mindflash.com/wpcontent/uploads/2012/06/12.06.18_Employees.png 36 Employee Training - Benefits and Steps in Employee Training Programme. (n.d.).Management Study Guide. Retrieved March 4, 2013, from http://www.managementstudyguide.com/employee-training.htm 38

done properly, they should be left to themselves in order to practice. Finally, all training programs should incorporate both follow up and feedback. Risk: Miami employees take Fridays off for football games without using a sick day GPAs Miami manager allows employees to take Fridays off during the fall to attend the University of Florida football games. The problem is that the employees do not use a sick day and therefore are considered to be at work that day. According to the information given on GPA, it is well known throughout company that the Miami manager allows this to happen. This poses a problem for those employees who work in other GPA locations or who work in Miami but do not attend the games. Employees who are not interested in the games could feel as if they are being discriminated against or singled out which would lead them to perform sub-par work or even file a discrimination lawsuit. Overall for this issue the frequency two and the severity is a two. Treatment: As stated before GPA recommends that Miami become a manufacturing facility. During this transition we also recommended that GPA fires the current Miami manager and replace him with the manager from India who oversees production there. This will allow GPA to establish a new leader at the Miami location and at the same time establish new rules and guidelines for its employees to follow, specifically not allowing employees to take Fridays off for University of Florida football games. If GPA decides to carry out this recommendation their Miami employees and employees overall will be assured no special treatment is being given to anyone in the company thus, eliminating any potential issues that could arise from allowing certain employees to take off work without penalty. Risk: Long tenured employees forgetting safety measures According to the information given on GPA many of their long tenured employees have forgotten proper safety measures. This poses an immediate concern for GPA because employees practicing unsafe work habits will increase the chance of an accident occurring. This will result in GPA having to endure more workers compensation claims and in general spend more money on handling issues that arise from employees not working safely, thus the severity is a four. Additionally, the frequency is a three because of the employees not currently practicing safe work habits. Treatment: Suggest that GPA conduct quarterly safety meetings and offer incentives to the employees if an accident does not occur for a certain period of time. Conducting quarterly safety meetings is an effective way to refresh the memory of those long tenured employees who have forgotten the safety protocols. Every three months GPA managers can hold a meeting and go over safety techniques such as proper lifting, moving, and opening methods. Additionally, as cited previously in another risk, incentives are a great way to motivate employees to practice safe work habits. Offering incentives gives employees something to strive for, and keeps them focused on doing their job safely.

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Risk: Employees having problems at work after quarter-end parties (emails and uneasiness) The information given on GPA states that the employees at the Seattle location often have problems the week following their quarter end parties at the Pikes Place Market. This poses an immediate concern for GPA and its managers because of the unpleasant feeling the women get when returning to work the following week. As stated before, when employees are uncomfortable in the workplace their productivity and morale decline leaving them performing at a sub-par level. Due to this fact, the severity of this risk is a three. The problem arises because the men in the office spread vulgar and condescending emails about their female coworkers after the parties. Due to the fact the parties occur at the end of each quarter the frequency is a two. Many of these emails are even known to contain inappropriate pictures of the female employees. According to Lisa Mooney (2013), sending vulgar, lewd or pornographic messages is offensive and detrimental to your business. 37 The reason for this is because it creates an unfriendly environment for the employees. Imagine if everyday you went to work you had to worry about coworkers snapping inappropriate pictures and sending them to all your coworkers via email. It wouldnt take long for the average person to get upset and not want to return to work. Overall, this issue is causing a decline in workplace morale and productivity. Treatment: Recommended that GPA enforce a zero tolerance policy for inappropriate email use while at work. By enforcing a zero tolerance policy as described before it will clearly depict and explain the consequences for using email inappropriately at work. The consequences can range from a verbal warning; to termination depending on how many times a particular employee has been disciplined on the email issue. Employees who are constantly using emails for inappropriate reasons should be terminated so that he/she does not damage the overall morale/family feeling in the workplace. In the end, an employer needs to make clear that inappropriate email use will not be tolerated and consequences will be strictly enforced regardless of position or status within the company. If this can be done successfully, GPA will see a huge decrease in unacceptable emails thus, making the workplace a much better environment to be in. Risk: Company parties causing sexual harassment issues Seattle, WA facility is known for having quarter-end parties at an off-site location. From these festivities, multiple sexual harassment issues have arisen. These parties are quarter-end so they are limited in number and thus have a frequency of one. After the manager closes the GPA tab, he heads home and the employees are left with no supervision even though this is a company event. Multiple female employees have made complaints of sexual harassment occurring at these 37 Mooney, L., & Demand Media. (n.d.). Penalties for Inappropriate Use of Email in the Workplace. Chron. Retrieved March 16, 2013, from http://smallbusiness.chron.com/penaltiesinappropriate-use-email-workplace-13257.html

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parties, along with inappropriate emails circulating the office the following weeks after the party. The company can face lawsuits and bad publicity because the sexual harassment between their employees at company events or work. The severity of this situation is a two. Treatment: Suggest that company parties are to be closely monitored and required to have management supervision throughout the entire event. All issues will be immediately handled and dealt with. There will be a zero-tolerance policy when it comes to sexual harassment in the work place or work related events. All employee emails are to be screened for inappropriate material, and with the zero-tolerance policy in place, anyone breaking this rule is to be terminated immediately.

Professional
Risk: Steve Bell posting about his death Steve Bell has been posting on blogs about death in general. Due to the direct relationship between Steve Bell and Guard-Pro Athletics, any posts regarding his future death may tarnish the companys image, therefore bringing the frequency of the situation to a two. This can have a negative effect on how consumers view our company and what they associate it with. Bad association leads to bad consumer perspectives on the company, which, naturally, affects the demand of products. Due to consumer reactions being assumptions, the severity is only a two. Treatment: Recommend that GPAs executives meet with Steve Bell and explain how his posts, while not relevant to the company directly, have an indirect relationship to the company because due to his employment. The executives will have to explain that postings like the capability of tarnishing the companys reputation in the eyes of the consumer and can directly affect sales. The executives will be demanding that he immediately stop posting anything in regards to death, and also consider the possibility of him posting inspirational quotes in order to counter act any negative effect that may have already occurred. Risk: Liquor liability from hosting company parties (Seattle location) Based on the information given, GPA hosts company parties at the end of each quarter where GPA employees partake in consuming alcohol. When any companys employee consumes alcohol there is always a risk involved for the employer. Alcohol alters a persons state of mind and could cause them to make decisions that they would not otherwise make. These bad decisions could cost GPA money, time, and reputation because any employee of GPA is a representative of GPA. The severity of this risk is a three because of the potential costs that could arise due to GPAs employees consuming alcohol. Additionally, the frequency is a two because GPA hosts these parties at the end of each quarter.

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Treatment: Recommend that GPA have/purchase a CGL policy that covers GPA for any potential liquor liability. Additionally recommend that GPA offer rides home for any employee who consumes any alcoholic beverage at their parties and host their parties using a professional bartender or at a venue. Luckily for GPA most general liability policies cover a business for incidents resulting from serving alcoholic beverages as long as you are not in the business of selling, making, storing, or distributing liquor (Company Holiday, 2013).38 By having a CGL policy it will protect GPA from any liability resulting from an employee causing an accident at a party due to having too much to drink. GPA should also begin offering rides home to each and every employee who has consumed alcohol. By offering rides home to GPAs employees it shows them you care about their well being and also allows everyone to enjoy the party without having to worry about how they will get home. Last but not least, is to hire a professional bartender or host all parties at an establishment, which is licensed to serve alcohol. By doing this the liability shifts from GPA to the person/establishment who is licensed to serve. They have the power to deny serving a patron or giving them another drink, thus, making them legally liable for anything that happens due to party attendees having too much to drink. Risk: Discriminating manager in Miami, FL facility The manager in the Miami, FL facility has been hiring based on sex and looks. It has become known that he specifically only hires attractive female employees. This has now been occurring for some time, which places the frequency of the situation at a four. There is the risk of our company facing law suits for discrimination, being that it is illegal, also the employees he is hiring are most likely not working at an acceptable efficiency level due to the reason that the criteria for new hires is solely based on the looks of an individual rather important criteria such as work ethic. Possible lawsuits can occur which would be costly, therefore putting severity at a four. Treatment: Advocate that GPA terminate the employment of the Miami, FL manager, and transfer the manager from the India facility to take the management spot now open in Miami, FL. Due to the facility in India closing down, the manager that was placed there will have the availability to take the management position in Miami, FL. Also since this location is to be expanded and include a manufacturing plant, this manager already has the experience required to run the manufacturing plant in Miami, FL.

38 Company Holiday Parties and Liquor Liability. (2010, December 13). Gaudette Insurance. Retrieved March 22, 2013, from http://www.gaudette-insurance.com/Blog/bid/30768/CompanyHoliday-Parties-and-Liquor-Liability 42

Contractual Liability
Risk: Contractual Liability for dealing with the Japanese YEN Historically the Japanese Yen has been valued more favorably compared to other currency including the US Dollar. This can cause a loss of potential income due to having to price goods based on the currency that GPA has agreed to. The currency risk is present every day which brings the frequency to a five. This can also cause large amounts of money being lost due to transaction cost between the two different currencies as well as the constant risk of market fluctuation between currencies, thus, bringing the severity to a three. Treatment: Suggest that GPA modify contractual agreement so that all transactions are done using the US Dollars. Over the past six months the value of the Yen has dropped down 20 percent due to the Japanese government weakening their currency in order to boost their economy.39 The reasoning to this is that by having cheaper currency they can compete with other Asian countries. For GPA, there is a risk of them paying more then what they would have paid on the open market especially since its frequency of happening is around a four and the severity a three. If changing the contract to U.S. Dollar is not an option, GPA should set up hedging methods in order to prevent paying high transaction cost during trading currencies. For example, methods that GPA can use set favorable exchange rates including Set up Spot Transactions, Forward Transactions, or set up Purchase of a Put Options and Calls.40 By creating these, GPA will now have the option, based on how much the market has fluctuated, to execute the option of buying currency at different rates compared to the predetermined one. This means that there will be lower losses in the devaluation of the currency due to the current regime practices. However, if for some reason the currency becomes more valuable, GPA has the option to not purchase it at that currency and keep the transactions on the contractual rate. Risk: Risk of insurer not renewing the CGL policy due to high liability claims When an insurance company decides not to renew a policy, it is a clear sign that your business is doing something wrong. This is the current situation that the Seattle, WA building is in; the insurance company is threatening not to renew the policy for the following year because the location is identified as a high-risk area in terms of premise liability. The policy can only be canceled once so the frequency is a one. This can be largely attributed to the facility being a highly technological plant that has had large payouts due to the carelessness of their employees. GPA faces a large risk exposure, if they dont find a way to keep the current insurance policy 39 Zuckerman, G., & CHUNG, J. (2013, February 14). U.S. Funds Score Big by Betting Against Yen. The Wall Street Journal. Retrieved March 4, 2013, from http://online.wsj.com/article/SB10001424127887324432004578302461873792762.html 40 Hedging Currency Risk. (n.d.). Credit Suisse. Retrieved March 16, 2013, from https://www.credit-suisse.com/ch/unternehmen/kmugrossunternehmen/en/import_ export/waehrungsrisiken/index.jsp 43

they have will have to spend the time searching for another company to insure them at a unfavorable rate. If their policy gets canceled before they get a chance to find a new carrier, then, they face the risk of having to pay for any incidents out of pocket, placing the severity at a five. Treatment: Advise GPA to enact multiple safety policies, including safety training and proper training for the work duties entailed in a typical day. By doing so, GPA will be creating a safer work environment and thus, reduce the amount of liability on the premise. There is a high probability that a portion of the accidents were resulting due to employees not following safety procedures. GPA should improve loss control techniques through multiple types of employee training and their retraining. The purpose to retraining is to reiterate the correct procedure for duties so that all employees have constant reminders, and therefore, keeping the workplace safer. Implement both safety techniques and repercussions for the employees who choose to ignore the safety protocol enacted. A good example is, if machinery is currently running, not to let any unnecessary personnel or personnel who do not have adequate training. GPA can also talk to the insurance agent and negotiate a new contract that would prevent a cancelation or a non-renewal circumstance. One way GPA can go about this is by negotiating a higher deductible for the underlying insurance company along with a higher transfer point for the umbrella policy. Risk: Contractual liability for paying in Rupees for dealing with India One of the largest areas where a company can spend revenue on a daily basis is foreign exchange risk; this is when a company deals with different countries and their currency. since this currency risk occurs every day, the frequency of this risk is a five. Currency fluctuations affect the value of the firms operating cash flows, income statement, competitive position, market share and stock price. When analyzing foreign exchange risk, the fluctuations of the currency can be comprised of 90 percent speculation and 10 percent actual cash flows.41. In other words, exchange risk comes from the availability of new information about the country. This includes policy, monetary, economic information. This is why for a company that decides to do business on the global level. There are products in the market place designed to combat these risks in order to save the company money like hedging. The severity of this risk is a three because these losses are big enough to cause mild monetary losses for GPA. Treatment: When foreign exchange risk becomes a problem for a company, the standard methods to treat it are through futures and options. Currently, GPA deals with the Indian Rupee due to the contractual agreement with the manufacturing plant there. Since currencies must be converted in order to perform business, GPA runs the risk losing money in the process. However, due to the performance of the Indian Rupee, it would not be advised to hedge against it at the moment. The 41 Parthasarathy, A. (2012, May 28). It is not a good time to hedge exposure to the Indian Rupee. Investors Are Idiots. Retrieved March 26, 2013, from http://investorsareidiots.com/2012/05/it-is-not-a-good-time-to-hedge-exposure-to-theindianrupee/ 44

Indian Rupee has fallen over than 27 percent when compared to the US dollar and is expected to decrease further.42 The biggest risk for GPA is the devaluation of their cash when dealing with India. This is largely attributed to a multiple reasons, the main one being the high trade deficit. Currently, India imports more goods than it exports. In terms of value of goods, their exports will not be as high as in previous years due to the crisis in Europe and the slow economic recovery in the US. Rather than dealing with the Indian Rupee, GPA should alter the contractual agreements with India, so that all transactions are done with the U.S. dollar. This would be more favorable for both sides as there would not be any loss in value based on the fall of the Indian Rupee, but also the India production plant would also be making more revenue. The actual negotiation of how much to pay in India can still be based on the current level of the Indian Rupee, but the actual transaction would be done in dollars so that the exchange risk such as fees and the loss of value in the period of time would be placed on India. Risk: Contractual liability with ChemPro for dealing with Yuan Companies that deal with goods on a global level have to combat the largely volatile market of currency risk on a daily basis. The daily reoccurrence of the risk brings the frequency to a five. The constant changes in pricing of currencies, creates opportunity for companies to lose millions of dollars as well as lose tax advantages that come from keeping the income statements and balance sheets leveled. The severity of this risk is a three because by losing the tax advantage and going into the next tax bracket, companies can pay millions to the government. Many companies look for products in the financial market place in order to counter these risks with a form of hedging that will offset any currency related gains or losses. Treatment: Urge GPA to consider hedging and options market. Currently the Chinese Yuan has hit a 20 year high value largely due to the American monetary policies devaluing the dollar.43 The way the markets are looking now there is a very miniscule chance that ChemPro would consider dealing with the US Dollar because the Yuan is expected to rise in value about 2-3 percent each year. The Chinese government has identified the current value of the Yuan and has begun to reduce restriction on the transactions for risk management techniques to counter the rise and fall of the Yuan.44 It is recommended to start using various option trades that are currently allowed by the Chinese Financial Ministry to help combat against the devaluation of the US dollar and the increasing value of the Chinese Yuan. Until late last year, Chinese regulators did not want any hedging against the Yuan but have now eased up due to the flexibility of the Yuans 42 Srinivas, A. (2012, May 25). Six reasons why India's rupee is in freefall. BBC News. Retrieved March 26, 2013, from http://www.bbc.co.uk/news/business-18201936 43 The Chinese Yuan Hits 20-Year High. (2012, October 17). Mad Hedge Fund Trader. Retrieved March 26, 2013, from http://www.madhedgefundtrader.com/the-chinese-yuan-hits-20year-high/ 44 Wei, L. (2012, February 20). More Yuan Hedging Tools Expected. The Wall Street Journal. Retrieved March 26, 2013, from http://online.wsj.com/article/SB10001424052970204131004577234931180044706.html 45

exchange rate having increased enough to where it is volatile for options trading. 45 Until the economic policies of the United States get sorted out and the buying power of the dollar starts to go up or until the Yuan loses stability, we recommend to consider the hedging and options market.

D. PERSONAL Workers Compensation

Risk: Workers Compensation laws vary from state to state. Workers compensation laws differ from state to state, thus it is important to consider these differences when looking at GPAs workers compensation setup because they operate in multiple states. If they are not in compliance with certain state laws they could be legally liable due their system not coordinating with state requirements. The frequency and severity of the risk is a five because GPA is not sure whether or not they are currently in compliance and if they are not they may endure a greater financial burned. Treatment: Suggest that GPA hire legal assistance to determine if their present Workers Compensation setup is currently in compliance with state laws. By taking the time to talk with a legal advisor about these issues, GPA will be able to identify any potential legal issues that may arise from their Workers Compensation setup. Overall, getting the proper information on what is legally required and not required will allow GPA to operate within the law rather than outside of it, thus allowing them to avoid costly legal fees and time in court. Risk: Workers Compensation Claims for back injuries increasing There has been an increase in the amount of Workers Compensation claims regarding back injuries over the last few years, placing frequency at a three. Employees are using improper lifting techniques, and also choosing not to use the pulleys that are in place for lifting products as a precaution in order to prevent back injuries. The employees are choosing not to use the pulley systems because they believe they can do it faster manually without having to use it and then guide the products. They also do not have any type of back support that prevents injuries such as these. There has been an increase over the years in workers comp claims, which brings the severity to a three.

45 Hong'e, M. (2012, April 15). Yuan's Trading Reform Gains Momentum, Risk Prevention Needed. Xinhuanet. Retrieved March 26, 2013, from http://news.xinhuanet.com/english/china/2012-04/15/c_131528219.htm 46

Treatment: Propose that employees are to wear mandatory back support belts, and will also receive extensive training on proper lifting techniques every six months. Doing this will instill a new form of lifting in all employees and reduce the amount of claims regarding back injuries. Also robotic arms are to be installed in all facilities instead of the pulley system as they are much more efficient for the lifting of heavy materials and better at preventing injuries. Risk: Risk of paying high cost workers compensation claims from severe injury There has been a high risk of workers compensation claims in the previous three years. The increasing amount of workers compensation claims has become a major risk. Proper safety measures and loss control have not been put in place, therefore resulting in an increase in numbers of claims per year. The frequency is a four. There have been multiple high dollar claims that have been paid out, thus bringing the severity to a three. Employees are not trained with proper safety techniques nor the proper techniques required for their job (ex. Heavy lifting). Treatment: Recommend that GPA require all employees to take training in proper workplace safety, and depending on their position require further training that would be essential to their daily duties. Employees required to do heavy lifting are to take safety courses on the proper lifting techniques in order to reduce the amount of injuries. All training will be required a minimum of once a year if not more. Risk: Health risks regarding truck drivers (bladder problems, lack of exercise, eating habits, etc.) There are multiple health risks to be concerned with when it comes to truck drivers employed by GPA. Long driving hours by drivers lead to bladder issues occurring because they are not stopping to use the restroom. They are driving for long periods of time, which results in a lack of exercise, which leads to unhealthier lifestyles. Also, because they are constantly on the move, there is the tendency of eating fast food, which is not ideal for health reasons. This is something done by the truck drivers constantly, bringing the frequency of the situation to a four. The lack of exercise, poor eating habits, and the holding off of using restrooms can result in many health concerns, and kidney illnesses. Treatment: Recommend training programs for truck driver wellness, which will explain the importance in what they eat and how it affects their life all together will be required. There will also be a mandatory amount of time off/maximum amount of time on the road per day. This will prevent elongated periods of time driving the trucks. There will also be an exercise program presented to them free of charge in order to promote an overall healthier lifestyle. By doing this, the overall risk of unhealthy lifestyles and routines will be greatly reduced and truck drivers will be more likely to live healthier lifestyles overall.

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Risk: Workers Comp Experience Modifier went from 1.26 to a 1.6 The workers compensation experience modifier has increased over the last few years as the amount of losses has also increased for GPA. The experience modifier can be either a credit or a debit. If the experience modifier surpasses one point zero then it becomes a debit and the premium of the client will suffer an increase.46 Due to the rising amount of claims in the previous years, our modifier has substantially increased and placed GPA farther away from achieving a 1.0. The Frequency of this is a three. The severity is a four because it is increasing the cost for the workers compensation premium that must be paid. Treatment: Advise GPA to incorporate a Risk Management department in GPA, this will reduce the amount of claims being made, and therefore reduce the experience modifier. Additionally, it is important to have the experience modifier reassessed the following year in order to prove a reduction in the amount of claims. A Risk Audit is also highly recommended, with that being said GPA will be able to minimize the cost of losses. The overall goal of establishing a Risk Management department is to bring the experience modifier down below a one.

Business Continuation
Risk: Steves heir has a gambling problem A risk that GPA faces when Steve Bell dies is that his heir then becomes the owner of his share of the company. This poses a problem for the company because Steve Bells son has a history of gambling and being reckless, therefore, the frequency of loss exposure is a five. Thus, if he were to take control of his fathers share of the company, it could result in risky financial investments for GPA, placing the severity at a five. Due to this the severity of this risk is a five with a frequency of one. Treatment: Urge GPA to prevent the risky investments and reckless spending done by the heir by outright buying Steve Bells portion of the company when he dies. By buying out Steve Bells portion, GPA can avoid having to deal with any possible choices his heir can potentially make. Additionally, it is recommended that GPA purchase a Key Man Insurance Policy on Steve Bell. This will allow GPA to become the recipient of funds in order to help replace Steve and have the potential financial opportunity of buying the portion of the company from Steve Bells heir, should Steve Bell choose not to sell. 46 Understanding Your Workers Compensation Experience Modification Factor. (n.d.).Assurance Edge. Retrieved March 28, 2013, from http://www.assuranceedgeonline.com/insurance/understanding-your-workers-compensationexperience-modification-factor/ 48

Risk: Halo Ventures wanting an exit strategy before reducing their share Halo Ventures is currently partnered with GPA and supported them financially when the company began. Halo now has thirty-five percent ownership but is not considering reducing their ownership percentage without a planned exit strategy. Due to Halo ventures not considering any reduction without a plan in place the frequency of the situation is a two. Additionally, Halo currently owns thirty-five percent of the company giving them some say in where the company should be headed. Due to Halo ventures having power within the company and their ability to sway company executives the severity is a three. Treatment: Recommended that GPA consider the two options that we have come up with for an exit strategy for Halo Ventures. The first option would be to take Steve Bells portion (fifteen percent) once he is deceased or bought out which will be used to offer GPAs senior employees ten percent investment in the company. The remaining five percent will be used to start up an IPO where individuals around the world can invest in GPA. Additionally, GPA can combine their idea of reducing James Rice and Halo Ventures shares by five percent each (ten percent total), which will be used to allow GPAs senior employees to have ten percent ownership in the company. The remaining fifteen percent acquired from Steve Bell (when deceased or bought out) will be used to create GPAs IPO. Overall, when GPA releases the IPO they also need to consider who is allowed to invest into the IPO. Specifically, they need to restrict the purchase of IPO stocks to the public so there is no chance for a hostile takeover. Risk: GPA Management is unsure of what to do in case of a 6-month shutdown According to the information given to us on GPA, the management claims they are unsure what to do in the case of a six-month shutdown. This poses a problem to GPA because without a plan(s) in place GPAs chances of recovering after a major problem is slim to none. Due to GPA not currently having a plan(s) in place to prevent against a six-month shutdown the frequency is a five. Additionally, the severity of this issue is a five because without a plan to protect against a six-month shutdown GPA will be out of money and out of business. Treatment: Suggest that GPA consider planning and implementing some of the recommendations that have been mentioned in previous risks. Mainly considering the big risks that could shut down GPA for a given period of time such as supply chain risk, and product liability issues. If GPA chooses to adopt our strategy for their supply chain risk (making Miami a manufacturing facility, and removing India), it will greatly reduce the chances of a full shutdown. At this point GPA will be able to have manufacturing done both in Seattle and Miami, and should either one suffer damage(s) the other will be able to maintain full production levels for GPA. Additionally, GPA needs to consider their product liability risks because legal fees and lawsuits can be costly and cause reputation issues for GPA. If they end up battling against a product liability issue in court and word gets around they produce subpar products or products that are defective,

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customers will turn to other providers for their sports protective gear. Additionally, should these loss control recommendations not fully cover GPA, it is suggested that GPA consider purchasing a business interruption policy. This will cover them should a covered loss occur and cause their business to be temporarily shutdown. Due to costs increasing exponentially after a loss occurs having a Business Interruption policy will help reduce the overall effects of the loss and help GPA return to their regular business operations in a timely manner.**** All in all, it is important for GPA to carefully plan against big risks so that the chance of a six-month shutdown is virtually eliminated.

Employee Benefits
Risk: Employees are concerned with GPA offering benefits When searching for a job, one thing everyone looks for is the type of benefits a company offers. Benefits are the perks offered on top of an employees salary. Currently, GPA does not have any employee benefits and therefore could have a problem attracting and retaining good employees. Generally, benefits are accrued over years of service, thus if a company offers benefits the employee will be inclined to stay longer in order to reach their desired benefit level. Due to GPA not having an employee benefit package the frequency is a one. Also, the severity is a three because GPA may not be satisfying their employee needs in order to keep them around. Treatment: Suggest that GPA conduct surveys and/or meetings with their employees in order to see what benefits are attractive to them. Once GPA has collected information on the types of benefits their employees prefer, they can then sit down with an insurance specialist and begin to setup an employee benefit plan. Establishing an employee benefit plan will increase the overall productivity of GPAs employees due to them being happier and better taken care of.

E. CRIME
Risk: Employees fighting with other employees At GPA there was an incident with an employee fighting another employee. This fight resulted in a broken jaw for one employee and a paid claim of 9,000. In addition to monetary consequences employers can see reduction in employee morale and productivity in the workplace when fights are present. According to Anna Assad (2013), Constant employee bickering and the tension it creates causes a hostile work environment, and employee morale and production suffer as a result. 47When employee morale and productivity is down, GPA is not operating at full capacity and are stuck coordinating disputes between employees. This costs employers time and money; therefore the severity is a three. Additionally, the frequency is a one because it has only happened once so far at GPA. 47 Assad, A. (n.d.). How to Stop Employee Fighting. Chiron. Retrieved March 22, 2013, from http://smallbusiness.chron.com/stop-employee-fighting-17929.html 50

Treatment: Recommend that GPA enforce a zero tolerance policy for fighting with fellow employees or anywhere on work grounds. Fights should never occur at work because it causes tension among workers whom are not even involved and in turn cause an uncomfortable feeling in the workplace. It should be clearly explained to all employees that fighting reduces overall teamwork and productivity and it will not be tolerated at GPA. The zero tolerance policy will clearly outline for each employee the consequences of fighting at the workplace. The consequences can range from the employee not being allowed to work extra hours, working preferred hours, or even getting fired. If GPA decides to develop and enforce a zero tolerance policy, fighting in the workplace will surely decline, meaning fewer problems for GPA and its managers to deal with. Risk: Potential theft from GPA employees In every business there is always the possibility that employees can steal from the employer. GPA needs to be aware that not all employees can be trusted and they could be hit hard for falsely trusting their staff. In fact, according to Daniel Kehrer (2011), An employee is 15 times more likely than a non-employee to steal from an employer, and employees account for 44 percent of theft losses at stores. 48 This simple fact should make it clear to GPA that they are at risk for employee theft and it occurs more often than the average employer would think. The frequency of the risk is three because employee theft can occur at anytime. Additionally the severity of this risk is a three because GPA could potentially lose revenue depending on what is stolen. Treatment: Recommended that GPA analyze some aspects of their current business operation to take precautions against employee theft. Specifically, how they monitor their employees, and how they monitor and track their inventory. GPA is a manufacturing company thus their raw materials and completed materials inventory are a valuable business asset. It is important for GPA to know exactly where product is at any given time in the production process to ensure each unit is accounted for. Without properly monitoring their inventory (raw and completed) GPA will not know whether or not its employees are stealing from them. In addition, it is recommended that GPA conduct background checks on all potential hires and current employees (if they havent already). Performing background checks give GPA the power to identify any employee or potential employee who has had a prior problem. This will allow GPA to hire employees with good backgrounds and eliminate employees with a bad track record thus reducing their overall risk of theft from the get-go. GPA should also lookout for key indicators that an employee may be looking to steal. The indicators an employer should look for in their employees are: Sudden devotion to work and working late, lifestyles well above salary, drugs and alcohol abuse, moonlighting with materials available at the business, evidence of gambling, 48 Kehrer, D. (2011, January 16). How to Stop Employee Theft. BizBest. Retrieved March 22, 2013, from http://www.bizbest.com/how-to-stop-employee-theft/ 51

constant borrowing and/or bad check writing (Kehrer Daniel, 2013).49 If GPA executives and managers are constantly looking for these changes in employee attitudes and actions they will be able to better protect themselves against potential theft. Overall, by properly tracking inventory (raw and completed), performing background checks, and closely monitoring employee actions GPA will be able to reduce the chance of an employee theft occurring. Risk: Hacker/Unwanted Party using terminated employees IDs It was determined that a hacker was able to use a terminated employees username and password to access GPAs servers. This is a clear risk to GPA because now a person who is unauthorized to view company information has access to everything on the company network. In fact, GPA discovered the hacker was able to view much of GPAs highly confidential material although there seemed to be no harm done. Due to the hacker being able to access sensitive company material the severity of this risk is a five. Additionally, the frequency of the risk a one because this issue has only occurred once. Treatment: Suggest that GPA implement a new policy for the IT department when employees are fired. Specifically, upon firing employees the IT department will disable the former employees username and password. If the IT department is actively removing past employees login information outside users will be unable to access the GPA network. Implementing a new policy is a simple and cost effective way to eliminate unwanted user access through GPAs employee login system. Risk: Stolen Vehicles from premises (Tacoma, WA.) Theft within a company is a constant concern, especially manufacturing firms. GPA has had four of their vehicles stolen from their parking lot over the past two year and management suspects this to be a case of employee dishonesty, but has yet found evidence to prove such accusations. This places the frequency of the situation is a three. This is an important issue that must be addressed by management because the cost in order to replace the stolen equipment is substantial. The large losses that GPA can face place the severity at a four. Treatment: Advise GPA to install GPS and other equipment in the company. A good lead to follow in regards to the use of company vehicles is the company Zipcar. The firstly, they issue a key card to the driver which will contain all of their personal information on it, this is used in order to access the car. The driver must place his issued card on the windshield by a reader in order to unlock the vehicle; by doing this the company is able to provide a log of the individuals who used the vehicle. This information is stored on the cars computer and also on a cloud server. By having this log of individuals who accessed the vehicle, they have information that can be used 49 Kehrer, D. (2011, January 16). How to Stop Employee Theft. BizBest. Retrieved March 22, 2013, from http://www.bizbest.com/how-to-stop-employee-theft/ 52

in their defense from theft. The car will not turn on unless there is a registered user logging into the car. If somehow an individual bypasses the first authorization process, there is also a GPS tracker implanted in the car which tracks where the car is at all times. If GPA implements these loss control mechanisms, they would able to greatly reduce the risk of theft from their facility.

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IV. RISK TREATMENT A. RETENTION RETENTION CAPABILITY

This section of the report will explain GPAs risk retention capabilities. Using the companys financial statements along with industry ratios we were able to evaluate GPAs solvency, leverage, efficiency, profitability and the overall position of the firm. If you wish to view the excel spreadsheet to see just how we calculated the retention analysis please see Appendix G. After reviewing the retention analysis we have determined that based on GPAs liquidity they can retain a less than average amount. The two ratios used to in this section (quick ratio and current ratio) proved to be unfavorable for the company. The quick and current ratio being unfavorable shows that GPAs short-term financial strength is weak. Thus, their ability to readily meet short-term financial obligations with there liquid assets is subpar. Based on the companys leverage we have determined they can retain an average amount. GPAs fixed asset to net worth ratio is significantly below the industry standard. This shows us that GPA potentially has too much of their cash tied up in fixed assets and not enough money readily available for the firms business operations. Additionally, GPAs total liability to net worth ratio is favorable. This shows us that the net worth of the company can offset GPAs total liabilities. Based on the firms efficiency we have determined that GPA can retain a less than average amount. All of the components to determine the firms efficiency proved to be unfavorable. The efficiency ratios look specifically at how well the firm is currently managing their assets in relation to their revenue stream. Due to it the efficiency ratios being unfavorable GPA should closely manage their current assets and continue to look for ways to improve. Based on GPAs profitability we have determined that they can retain a higher than average amount. GPAs returns on sales, return on assets, and return on net worth ratios are all favorable. This indicates to us that GPA is growing as a company and currently earning profits through product sales and by properly using their assets to generate revenue. After evaluating the results of the retention analysis we have determined that overall GPA can retain an average amount. Due to our analysis we were able to get a retention amount in numerical terms. We reached our final number(s) by taking the average of the median totals from Earnings and Surplus, Working Capital, and Sales. During the analysis it was necessary to exclude the Total Assets averages because that category would have skewed the results. The final result of the retention analysis has shown us that GPA should retain an amount between $580,000 to $670,000 annually.

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RETENTION OPTIONS
Based on the final results of our retention analysis we have concluded that the company should overall retain an average amount, specifically somewhere between $580,000 to $670,000 annually. It is recommended that while retaining an average amount GPA implement loss control techniques whenever possible throughout all levels of the business. These techniques will help reduce the overall risk of GPA by improving the safety and awareness of all employees. Some examples of our recommended loss control are installing GPS trackers in all company vehicles, installing sprinklers at the Tacoma, WA facility, and having proper insurance coverage. These examples of loss control along with many more of our recommended techniques are later organized by type of loss control and priority rating to help guide GPA in the right direction. In addition to implementing loss control, GPA should use deductibles and co-insurance to their advantage. Properly setting deductible and coinsurance levels will help GPA better manage their retention. For example, by specifically choosing high deductibles for some coverage it will allow GPA to retain more of the risk upfront and pay a lower overall insurance premium thus saving the company money. It should be noted that deductibles are required to be paid by GPA before the insurance policy will step into place and begin providing coverage. Furthermore, by having the correct coinsurance percentage it will allow GPA to retain what they can afford and transfer what they cannot. We suggest choosing the 80 percent coinsurance provision for your Building and Personal Property policy. This will make GPA responsible to pay 20 percent of the total loss in addition to satisfying the set deductible.

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B. INSURANCE AND RISK FINANCING PROPOSED SCHEDULE OF INSURANCE

Building Values
LOCATION
SAN FRANCISCO, CA SEATTLE, WA TACOMA, WA MIAMI, FL SAN MATEO, CA

BUILDING VALUE
$0 $7,600,000 $3,200,000 $3,200,000 $1,600,000

TOTAL

$16,100,000

Property Insurance
PREMIUMS 80% COINSURANCE WITH NO ADDITIONAL SPRINKLERS
$394,630.00 $59,194.50 $153,562.60 $267,225.10

WITH ADDITIONAL SPRINKLERS

$380,474.87 $57,071.23 $134,187.40 $256,201.04

BUILDINGS INCREASED COST OF CONSTRUCTION CONTENTS BUSINESS INTERRUPTION

TOTAL

$874,612.20

$827,934.54

Property Coverage (Other than building and contents)

COVERAGE
ACCOUNTS RECEIVABLE SIGN - INLAND MARINE LEASEHOLD IMPROVEMENTS & BETTERMENTS TRANSIT COVERAGE EQUIPMENT BREAKDOWN COVERAGE

PREMIUM
$2,500.00 $122.00 $1,237.72 $760.00 $380.00 $24,000.00

TOTAL

$28,999.72

Total Property Insurance Premium

WITH NO ADDITIONAL SPRINKLERS INSTALLED WITH ADDITIONAL SPRINKLERS INSTALLED

$903,611.92

$856,934.26

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Commercial General Liability

COVERAGE
PREMISES AND OPERATIONS PRODUCTS EMPLOYMENT RELATED PRACTICE LIABILITY EMPLOYERS LIABILITY PERSONAL AND ADVERTISING

PREMIUM
$748.60 $2,235.95 $2,500.00 $30,261.40 $119.38

TOTAL

$35,865.33

Umbrella Liability
COVERAGE
UMBRELLA

LIMIT
$1,000,000.00

PREMIUM
$7,500.00

Commercial Auto Liability

COVERAGE
TRUCK TRACTOR COMMERCIAL PRIVATE PASSENGER

LIMIT
$1,000,000 $1,000,000 $500,000

PREMIUM
$33,022.60 $10,311.10 $12,264.10

TOTAL

$55,597.80 $98,963.13

Total Liability Insurance Premiums Crime

COVERAGE
EMPLOYEE DISHONESTY ENDORSEMENTS:
BROAD FROM MONEY AND SECURITIES INSIDE

PREMIUM
$23,595.00

ADJUSTED PREMIUM
$20,928.77

PERCENT CREDITS
11.3%

$20

$17.74

11.3%

TOTAL

$23,615.00

$20,946.51

Total Crime Insurance Premiums

$20,946.51

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Workers Compensation
COVERAGE
AIG WORKPLACE SAFETY PROGRAM DRUG FREE PROGRAM WAIVER OF SUBROGATION

PREMIUM
$499,593.67 -

TOTAL

$499,593.67

Total Workers Compensation Premiums

$499,593.67

TOTAL INSURANCE PREMIUMS ALL LINES

WITH NO ADDITIONAL SPRINKLERS INSTALLED WITH ADDITIONAL SPRINKLERS INSTALLED

$1,523,111.23

$1,476,437.57

PROPERTY INSURANCE
There are many different coverage options that are available for GPA to purchase. This section will cover what coverage options we believe are best for GPA. Most of these coverage options are specifically designed to minimize the possibility of a total loss to the company at the best cost and coverage. We have also selected key endorsements that are designed to combat specific risk exposures that have been identified specifically to GPAs business. To view the detailed financial calculation regarding the property insurance, please view the premium workbook located in Appendix F. For the buildings we recommend that GPA purchase CP 00 10 Building and Personal Property Coverage Form with a CP 10 30 Cause of Loss Special Form. We believe that this coverage is better suited for your company because with the Special Cause of Loss Form, GPA is covered on an open perils basis thus, for anything not specifically excluded in the contract. This means that if a loss occurs, coverage depends on if they loss is excluded within the contract rather then if this is a loss due to a covered peril. It is a safer option for GPA because it provides the broadest coverage for the company, which can be ideal for manufacturing businesses. It is sometimes hard to predict every type of loss that is possible for a business and by covering the business broadly; it gives more possibilities for coverage. Within this coverage, you will have coverage for building and personal property located at each of your premises. The term building is referring to the actual structure as well as any additions, fixtures, and machinery that are used to preform business operation. Personal property 58

means the building contents in the facility that is used to maintain or service the building or structure as well as the premise. This includes any furniture and fixtures, machinery and equipment, personal property used for the business, and any equipment that is leased to you that you have a contractual responsibility to insure. However all of the personal property is only covered to the full limit within the 100 feet of the described premises. If your property is outside the premise you have extended coverage for $10,000 as long as it is not in a vehicle or not in the care or control of another party. The only other time that the personal property will be outside the coverage area is when completed goods are being transported to the shipping center but this will be covered with another contract later discussed. For the buildings, we recommend insuring them with the CP 04 35 Functional Replacement Cost endorsement due to the flexibility of reconstruction. Functional Replacement Cost allows for the replacement of expensive and obsolete items with less expensive, more modern, and state of the art work.50 With this endorsement, when a total loss occurs to one of the locations it will allow GPA to build a replacement building with less costly building material that is functionally equivalent. This allows both the Tacoma and the Seattle locations to have a lower premium because the replacement of the buildings will be done with cheaper materials. For example, lathe and plaster walls could be replaced with wallboard or plywood.51 Also with this endorsement, GPA has more freedom to dictate what type of building they want to construct to better suit their needs. The premium amount for the entire coverage and all locations will cost $827,934.54 if the additional sprinklers installed. If GPA decides not to install sprinklers in the Tacoma location it will cost $874,612.20 for the entire coverage. For additional information on Functional Replacement Cost please refer to Appendix P. In addition, for information regarding the sprinkler premium please visit Appendix H. We also recommend getting a CP 04 05 Ordinance or Law Coverage endorsement along side the with the Functional Replacement Cost endorsement. Since the buildings are extremely old, the addition of the Ordinance or Law coverage is important because building laws and ordinances for land use and rebuilding are more frequently applied to older structures than newer ones. This endorsement becomes active when a law or ordinance requires the building to be demolished and reconstructed to the current building codes. In GPAs case, for the Tacoma and the Seattle location when the building receives more then 40 percent of damage then by law it is required to be reconstructed to newer standards. For the Miami location, the building is subject to new ordinance laws if it is more then 20 percent damaged, instead of the 40 percent requirement due to the grandfather clause for older buildings. This endorsement provides coverage for the loss to the undamaged portion of the building, the demolition cost, as well as the increased cost of construction. However, one key thing to remember is if the reconstruction is required by ordinances due to fungus, dry rot, or bacteria, then the endorsement will not function. The premium amount for this policy without the additional sprinklers in the Tacoma location will end up being $59,194.50. If GPA were to install the sprinklers, then the premium 50 Dudey, P. O. (2005). Functional Replacement Cost. Adjusting Today. Retrieved March 26, 2013, from http://www.adjustersinternational.com/ATpdf/3026_FunctionalReplacementCost.pdf 51 Dudey, P. O. (2005). Functional Replacement Cost. Adjusting Today. Retrieved March 26, 2013, from http://www.adjustersinternational.com/ATpdf/3026_FunctionalReplacementCost.pdf 59

amount would be $57,071.23. For more information on Ordinance or Law coverage please see Appendix Q. Within total property premium, we also factored in $120,804 to insure all locations with the National Flood Insurance Program General Property Form for the building and contents. We recommend it because GPAs buildings are in locations that are subject to either heavy flood damage from heavy rains, hurricanes, and winter runoff due to their geographic locations. These areas are also known for having high volume of flood policies in force according national coverage map to a referred in Appendix M. Most likely the Miami location is located in a Special Flood Hazard Area classified by the National Flood Insurance Program. Within these locations, a building has a 26 percent chance of suffering flood damage compared to nine percent from fire damage in a 30-year period.52 In regards to building property coverage, it provides protection to the building and improvements to the unit. There is also coverage for building property for a 45 days when at another location due to Property Removed to Safety section. The policy also includes an extensive list of fixtures, machinery, and equipment that is covered which will be included within the policy and Appendix M. For personal property, there is coverage only for personal property that is solely owned by the insured party and is valued at Actual Cash Value. One thing to remember is that National Flood Insurance Program does not provide coverage for any business interruption, extra expense, or additional living expenses. 53 If GPA requires more coverage then the national policy limit of $500,000 then they can purchase additional coverage from a private insurance company using the CP 10 65 Flood Coverage Endorsement that can be used excess the NFIP coverage.54 We also recommend purchasing a CP 00 32 Business Income (Without Extra Expense) Coverage Form, this will provide coverage in the event of a shutdown of operation by a covered peril. We decided to not purchase the Extra Expense portion because we believe that this can be mitigated through loss control and proper risk management techniques. After completing the business income analysis we recommend that GPA maintain insurance coverage of $16,518,442.50. From a risk management perspective, this is significant coverage for a business because it allows them to recover any income they might have lost should a shut down occur. To purchase this coverage for GPA, it will cost $267,225.10 if the additional sprinklers are not installed in the Tacoma location. If they were it would cost GPA $256,201.04. To fully understand how the premium for Business Income was calculated, the details can be found in Appendix C. Using the data we have received regarding the business, we used the given growth rate percentage of the firm, the yearly sales, annual payroll, and the net income to calculate GPAs overall Business Income premium. 52 Koehler, B., & Arnold, H. (2010). Adjusting Today. Retrieved April 8, 2013, from http://www.adjustersinternational.com/ATpdf/3033Flood.pdf 53 Koehler, B., & Arnold, H. (2010). Adjusting Today. Retrieved April 8, 2013, from http://www.adjustersinternational.com/ATpdf/3033Flood.pdf 54 Koehler, B., & Arnold, H. (2010). Adjusting Today. Retrieved April 8, 2013, from http://www.adjustersinternational.com/ATpdf/3033Flood.pdf 60

One thing to remember is that the Business Income coverage is not Holy Grail coverage; meaning it does not protect GPA from all types of business interruption. For example, Business Income Coverage Form only covers interruption that is a result of a covered loss. Since ChemPro is currently GPAs single supplier for raw materials, if they suffer a loss and therefore GPA now cannot produce their products, this policy would not step into place because it is not considered a covered loss. To prevent this we recommend that GPA either set up a contractual agreement with another company to take over production if the main supplier shuts down or consider purchase a CP 15 08 Business Income Form Dependent Properties Broad Form endorsement. This coverage is designed to extend coverage to include multiple suppliers with the same limits of insurance as GPAs. This policy does not have any covered causes of loss within the contract so it relies on the CP 00 32 Business Income (Without Extra Expense) Coverage Form. If GPA decides that this endorsement is necessary for the business, they need to contact an outside agent because the required information to calculate it was not given. We have identified other coverages besides the building and content that we believe to also be beneficial for GPA. One such coverage is the CM 00 66 Accounts Receivable Coverage Form, which is designed to cover the cost to replace the records and recover the money that is owed to the firm by customers as well as pay for the money that cannot be recovered if they are lost or destroyed in a covered loss. For this coverage we recommend you to use the reporting form method because this will require GPA to submit monthly statements of what is their current value of accounts receivable outstanding. We recommend this because it allows the insurance company to accurately estimate what the adequate payment should be due to the history of GPAs previous statements. This method also protects GPA because the insurance company now has now a secure copy of the companys accounts receivables and starting point for recovery. When calculating how much GPA should purchase, we determined that the average monthly amount to be around $340,000. We rounded up the coverage amount to $400,000 in order to account for monthly fluctuations for their Accounts Receivable and to provide the best coverage. This resulted in an annual premium of $1000 to purchase this coverage. We also recommend that GPA to purchase the CM 00 28 Signs Coverage Form to extend the coverage to the five outdoor signs located at each GPA location. These signs are valued at $8,000 each totaling to $40,000. GPA needs to purchase this policy because most insurance policies exclude coverage for signs that are not attached to the building or just provide minimum coverage to avoid court battles. With this coverage form, GPA now has protection for the signs from any direct damage, vermin damage and defective materials. To purchase this policy, it will cost GPA $122.00. Over the past five years, there has been significant crime exposure on GPAs premises. We recommend that GPA purchase a CR 00 20 Commercial Crime Coverage Form (Discovery Form) in order to prevent theft within the business. This contract provides coverage for losses from employee actions like theft, safe burglaries, embezzlement, forgery, computer fraud, credit card fraud and counterfeiting at their discovery during the policy period. However, we recommend to only purchase the Coverage A: Employee Dishonesty and Coverage C: Money and Securities Inside Broad Form. We chose these coverage options because the majority of losses that this policy protects against can be handled through proper loss control and risk management techniques. In the end we determined that Employee Dishonesty coverage is

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essential because it is impossible to predict the actions of employees. For example, employees are 15 times more likely to steal from a employer then a non-employee and theft by employees account for 44 percent of store losses. 55This was also the reasoning to purchase the Money and Securities Inside Coverage as a way to reimburse stolen money if loss control procedures fail. The contract also provides extended coverage for an additional 60-day past the policy period if the policy is not renewed due to the Extended Period To Discover Loss condition. We calculated the dishonesty exposure index by taking five percent of the value of goods on hand, 20 percent of current assets other than goods on hand, and ten percent of annual gross sales. When added together this gave us a final dishonesty exposure index $5,898,750 which was used to determine the minimum fidelity coverage limit that ended up being from $400,000 $450,000. We recommend getting $425,000 of coverage which resulted in a final adjusted premium $20,928.77 if the index of 11.3 percent is included. Full details regarding the calculation can be found in the Premium Workbook in Appendix F. Another coverage that we recommend GPA to purchase is the CP 00 60 Leasehold Interest Coverage Form for the facility in San Mateo in order to keep favorable rent if the leased building sustains a covered loss. This covers the difference in the rent prices at the described location and the rental value of a premise that you lease after the original location becomes unusable. For example, GPA has signed an eight-year lease for the current location. The rate of the current facility is $11,500 per month or $1,104,000 for the full eight years. A new facility would cost GPA $13,500 a month or $1,296,000 for the full eight years to rent. If a loss were to occur to the facility and is deemed unusable, it would equate to a $24,000 a year loss or $192,000 for the full eight years. Also this coverage extends to any Improvements and Betterments lost at the old location after the lease is canceled. This coverage is ideal for GPA because the Building and Personal Property Coverage Form will not cover any undamaged improvements and betterments when the building is torn down, but with this policy GPA will be reimbursed56. The Leasehold Interest Form is an important component because the benefit far out weights the cost of this coverage, $1,237.72 per year, and will protect key components of the business. To view our calculations regarding the leasehold workbook please visit Appendix E. Another coverage that we recommend to purchase is the IH 00 71 Annual Transit Coverage Form in order to protect GPAs manufactured goods that are being transported to designated locations. This policy provides coverage for completed products in transit when GPA transports them to and from the airports as well as when the custody transfers over to the common carrier. However, this policy does not trigger when it is transported by ship unless its incidental. This policy is ideal because there already have been incidents in the past of cargo being destroyed during transportation. To purchase this policy, it will cost GPA $380 for $400,000 of coverage. GPA has the potential to need two more contracts depending on their business decisions. If it is in GPAs best interest to continue with contracting out company vehicles, we recommend 55 Kehrer, D. (2011, January 16). How to Stop Employee Theft. BizBest. Retrieved March 22, 2013, from http://www.bizbest.com/how-to-stop-employee-theft/ 56 http://www.iiaba.net/webfolder/la/ask%20mike/2011/ask%20mike%20%2311-05.pdf 62

purchasing an IH 00 72 Motor Truck Cargo Carriers Coverage Form. This contract provides coverage for third party goods that are being transported by GPAs company vehicles while acting as a common or contracted carrier. This policy also has similar exclusions as the Annual Transit Coverage Form. It does not provide coverage for like notes and securities, precious metal or jewelry, furs, coins, and animals. It also does not extend coverage while you are contracted to the property while waterborne unless its an incidental trip. The other coverage that GPA may need to purchase in the future is the IH 00 76 Motor Truck Cargo Owners Coverage Form. If and when GPA decides to distribute goods as a private carrier, the IH 00 71 Annual Transit Coverage Form would be impractical due to the extra coverage it provides which at this point would no longer be necessary. As a private carrier, the extension of coverage for contracted parties would no longer be required because GPA would perform the distribution. One of the main coverages that we recommend GPA to purchase is the BM 00 20 Equipment Breakdown Protection Coverage Form. With this coverage, there is now protection for any losses that are caused by mechanical, electrical failures, or loss of pressure or vacuum equipment from a covered loss. This coverage is important to have in a companys insurance program because it provides broad protection to valuable equipment that is used to manufacture goods.57 A significant reason to purchase this policy is the added coverage for expediting expenses. This means that any extra costs that are incurred in order to make temporary repairs and expediting shipment for parts or repairs are covered when a covered loss damages property. For this policy, we recommend getting $2,000,000 of coverage for the company because of the nature of the business and this will cost GPA $24,000.

LIABILITY INSURANCE
There is a large liability exposure that is prominent within any manufacturing company including GPAs. In order to mitigate the exposure that is present, GPA should implement recommended loss control techniques as well as transfer risk to an insurance company. As a result, we highly recommend GPA to purchase a CG 00 01 Commercial General Liability Coverage Form with a limit of $500,000. The details regarding the calculation of the liabilities proposed for GPA can be viewed in Appendix F. With this policy, GPA has broad coverage for liability exposures because liability exposures are assumed covered unless it is excluded by the contract. This includes coverage for GPAs Premises and Operations Liability as well as the Product Liability. What the premise and operations portion of the policy is designed to cover is any general liability that may arise from performing business at a given location. This includes any injury suits from any nonemployee that is on the premise. The product liability portion is designed to cover for the liabilities that occur from GPAs finished goods. If an individual becomes injured due to a malfunction of equipment, the manufacturing company will be found at fault and would likely 57 Malecki, D. S. (2009). Equipment Breakdown Insurance: Too Important to Ignore!Adjusting Today. Retrieved March 26, 2013, from http://www.adjustersinternational.com/ATpdf/3035_ Equipment_Breakdown.pdf

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face a suit. The CGL policy also provides coverage for lawsuits regardless of policy limits. When a suit is brought against GPA, the CGL policy will legal costs to defend without affecting policy limits. The CGL policy provides protection to the policyholder within a few coverage sections. The first coverage section, Coverage A, is designed to pay for any bodily injury and property damage. A few key thing to remember that the CGL policy does not cover any employee injuries. This is because employee compensation due to injury is already covered within GPAs worker compensation policy. This exclusion is in place to prevent the employee from being over indemnified. Also, the CGL policy does not provide any coverage for injuries or property damage due to contractual liability. For GPA this is important because any losses that are cause while contracting company owned semi-trucks for third party jobs are not going to be covered. Other coverage will be needed to transfer this exposure or the company will have to pay out of pocket. Coverage B is designed to cover damages resulting from Personal and Advertising. Examples of injuries that would be covered under this coverage include false arrest, detention or imprisonment, malicious prosecution, oral or written publication. Coverage C of the policy is designed to pay out immediate Medical Payments to a injured party in order to reduce the chance of a lawsuit landing on GPAs doorstep. Under Coverage C of the CGL, it will pay out $500 per person with a $10,000 aggregate limit. For GPA the entire cost of their Commercial General Liability Policy, came out to be $3223.31. It is important to adequately insure the company as an employer when suits for indemnity arise. In order to do this GPA needs to insure them for Employers Liability within the WC 00 00 00 A Workers Compensation and Employers Liability Insurance Policy. The Employers Liability coverage is designed to cover claims or suits against the employer when the injury or illness does not fall within the workers compensation laws. This includes claims due to injury, disease, or fatality that are a result from employment activities. We recommend this coverage because of the increasing frequency of Workers Compensation claims as well as the increase of claim payouts over the past five years. The amount of Employers Liability coverage purchased should be $500,000, which will have a premium of $30,261.40. In order to prevent losses due to employment related allegations, we recommend that GPA purchase an EP 00 01 Employment-Related Practices Liability Coverage Form. This policy is designed to protect GPA and its directors and officers against claims made by past and current employees regarding any discrimination suits, wrongful termination of employment, as well as any sexual harassment claims. This is important for GPA due to them already having multiple problems that policy would provide coverage for if the implemented loss controls fail. However, this policy is not designed to cover the employer from any Workers Compensation laws or any similar laws. We recommend purchasing a policy amount $5,000,000 due the high cost that are associated with defending against these suits. To protect against the auto exposure from the company vehicles, we recommend purchasing a CA 00 01 03 10 Business Auto Coverage Form. We suggest insuring the vehicles with symbol two because the vehicles will have coverage for liability, physical damage, medical payments, and uninsured motorist. This coverage will provide $1,000,000 of liability coverage for truck tractors and commercial vehicles while providing $500,000 coverage to private

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passenger vehicles. This annual premium for this policy is $55,597.80 this includes collision and liability coverage for all GPA vehicles. The auto workbook is located in Appendix B, which can be viewed to see how we calculated the overall premium for GPAs automobiles. Finally, we recommend purchasing a CU 00 01 Commercial Liability Umbrella Coverage Form as a way to protect GPA with an additional layer of coverage for all liability. Once the underlying policy has been exhausted, the umbrella is designed to take over and pay the remaining costs of a loss. However, if there arent any underlying coverages for the loss, then the policy would still pay for them after the insured pays a self-insured retention (essentially this is a deductible). For $3,000,000 of umbrella coverage it will cost them only $15,500 in premium a year. After analyzing different option for the underlying policy limit, we believe this is the best amount due to the increased amount of coverage which is obtainable now for cheaper rate per million. For this coverage to be purchased, we had to satisfy the underlying limits of Commercial General Liability, Automobile Liability, Building and Personal, Employer Liability, and Personal & Advertising Injury coverage for $500,000 each.

WORKERS COMPENSATION
ASK Consultants Inc. has reviewed multiple workers compensation policies in order to find the best fit for GPA. After conducting multiple analyses explained below we chose to go with AIGs Retrospective Rated Workers Compensation plan. We believe that AIGs retrospective rated policy offers the best protection at the most affordable cost for GPA. With retrospective rating plans it should be noted there are minimum and maximum premiums. At minimum, the carrier will be able to cover the administrative costs related to servicing the policy. At maximum, the insured will be able to limit or cap the amount the carrier can collect under the policy should claims experience become very adverse. 58 The minimum amount GPA will have to pay under AIGs plan would be $242,500 with a maximum at $605,000. These amounts will limit GPAs exposure when its come to their workers compensation risk because the most AIG can collect from GPA is capped at $605,000. Furthermore, with retrospective rated plans you cannot be sure of the exact cost upfront. Due to it being retrospective, the formula used is applied once the policy term is over, thus recognizing the companies actual loss experiences during the year. This can be a benefit to GPA if they experience losses lower than originally predicted. However, it can be a bad thing if GPA experiences losses higher than originally predicted. Should losses be lower than anticipated GPA will receive a refund; if they are higher GPA will have to pay a little extra but again it is limited to the maximum premium limit set on the policy. When comparing the different workers compensation plans from AIG, Grange, and Zurich it was first necessary to determine GPAs three-year claim average so we can use that number to generate the yearly premiums. The three-year average of GPAs incurred losses came 58 "Retrospective Rating and Your Workers Compensation Program." Assurance Edge Online. N.p., n.d. Web. 6 Apr. 2013. 65

out to be $266,914.51. We calculated this number by finding the Present Value (PV) of GPAs incurred losses over the last three years and taking the average, the calculation can be seen in Appendix K. In the same Appendix listed above, you can also find the forecasted workers compensation losses for 2013. This number turned out to be $548,449.46. We reached this conclusion by performing a regression analysis using total losses as our Y values and the years for our X values. We used these variables because we wanted to see how the incurred losses changed throughout the previous years. After identifying what we wanted to predict we then graphed the data, shown in Appendix K, but it was not as linear as we would like it to be. Therefore, we performed an additional regression analysis but this time using the LN of total losses as our Y to see if the linear relationship improved. When we graphed this information, sure enough, it proved to be more linear, thus we used this data when considering our evaluation. This new graph is also shown in Appendix K. The overall reliability of the regression analysis seems to be fairly accurate. We came to this conclusion by first looking at the R-square value; in this case it was .89. This implies that in our analysis we were able to explain 89 percent of the variation. Next, we looked at the F-Stat of the regression. The F-Stat in simplest terms tells you whether or not the overall model has predictive power. The basic rule is if the F-Stat is less than.10, the overall model has predictive power. In our case, the F-Stat turned out to be .054 thus; our model does a good job portraying the information. Lastly, we looked at the P-Value. This value is crucial to consider because it tells us whether or not our X value does a good job predicting the Y value. If the P-Value is under .1, then we are over 90 percent certain that it is a good predictor. In our regression, the PValue was .055, thus showing that the X variable we choose did a good job predicting the Y variable. The complete regression analysis can be viewed in Appendix K. It was then necessary to complete a sensitivity analysis to determine which policy was best. To do this we looked at how the Net Present Value (NPV) of the premiums changed when altering the discount rate and incurred loss amounts alike. We chose to test five different incurred loss amounts per discount rate used (3/6/9), with one amount being $266,914.51 (GPAs threeyear claim average for incurred losses). The sensitivity analysis described can be seen in Appendix I. After completing our analysis we concluded that AIGs Retrospective Rated policy was the best choice for GPA in terms of cost, coverage, and policy flexibility. ASK Consultants have also transformed GPAs loss history into a graphical representation, which can be viewed in Appendix D. We have separated each injury by location on the body, for example head, back, leg, etc. This was done to see if we could spot any trends over the years when it comes to injury type and cause. It seems that GPA is suffering losses that can be reduced by implementing some loss control techniques. We believe by adopting many of our recommended treatment options such as holding meetings emphasizing the importance of safety, it will lower GPAs overall workers compensation losses. Finally, after closely analyzing GPAs workers compensation injuries, ASK consultants have determined that GPA is overall under-reserving. Refer to Appendix J in order to review the detailed analysis of the Workers Compensation Injuries workbook. In this section, we again

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separated the data by injury and location on the body. In order to evaluate the reserving, we compared the mean of closed incurred claims to the norm of closed paid claims.

C. LOSS CONTROL
Loss control is a critical component in the risk management strategy. The following section will depict the multiple loss control techniques GPA should implement in order to reduce the cost of risk and the amount of exposures the company may face. Recommendations will be made to the company in order to maximize loss prevention and loss reduction. These recommendations have been both categorized and organized by type of loss control and priority rating.

Property
Immediate Priority: Develop new technology or material in order to get new product patent Install sprinklers in Tacoma, WA facility Complete all phases of environmental contamination testing for Seattle, WA facility Implement policy that allows only authorized workers on loading dock Ensure edges of loading dock are clearly marked and visible

Priorities to be Handled Within Six Months: Expand Miami, FL location to also include manufacturing plant New manufacturing equipment is to be installed in Miami, FL premise Initiate a policy dealing with hazardous waste and/or materials during the construction of final goods

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Priorities to be Handled Within One Year: Robotic arms for heavy lifting are to be installed in every facility Installation of Saw Stop as a guard for all company used saws

Crime
Immediate Priority: GPS trackers are to be installed into all company owned vehicles Miami, FL Distribution centers Manager is to be terminated

Priorities to be Handled Within Six Months: Enact a closed network IT system

Fleet
Immediate Priority: Install GPS trackers in company vehicles Trucks/Trailers used strictly for GPA shipping

Priorities to be Handled Within Six Months: Implement policy for amount of time truck drivers spend on and off the road

Priorities to be Handled Within One Year: Job dictates type of company vehicle employee receives

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Personal
Immediate Priorities: Enact new trainings for all production line employees: safety, proper lifting techniques, CPR, and duty trainings on their positions on an annual basis Employees in charge of equipment maintenance are to receive proper equipment training on a annual basis Diversify suppliers, enact a secondary contract Closely monitor overall performance of San Mateo, CA outlet store Terminate the employment of the Miami, FL distribution centers manager Data is to be backed up on a daily basis onto multiple servers Higher legal counsel for product liability Implement a Zero-Tolerance policy for employee fighting Implement background checks on all new hires Enact Zero-Tolerance policy for sexual harassment Make sure all training programs satisfy OSHA requirements

Priorities to be Handled Within Six Months: Terminate contract with manufacturing plant in India Miami, FL distribution center is to expand and include a manufacturing plant Sexual harassment seminars are to be held annually

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Non-Disclosure agreement with Steve Bell to ensure company brand is not tarnished

Purchase Keyman insurance on Steve Bell and hire a new employee to shadow him

Enact pre-employment screening for truck drivers Update the company internet use policy Implement either internal or third party Human Resources Department Offer rides home or hotel accommodations to employees at the end of Quarterly end parties

Negotiate contractual agreements with foreign countries Quality testing on both work-in-progress and final construction of goods

Priorities to be Handled Within One Year Hire an ergonomic consultant Offer safety incentives for employees and conduct internal safety audits Consider option of opening IPO Remove all nonconforming office equipment and use ergonomic replacements Implement special policies for having visitors on premise Implement retirement/401k options

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V. RISK ADMINISTRATION POLICY STATEMENT

The mission of ASK Consultants INC., is to help identify and manage our clients current and future risk exposures. We strongly believe risk management plays a key role in the success of any business. Our policy is to come up with cost-effective risk control methods to ensure that the risks are either eliminated or reduced to a controllable level. Risk is always a factor whether it is in life or business. Every business is exposed to risks that are unique and therefore we look for solutions that custom fit our clients. We like to treat our clients as a professional doctor would treat their patient. First, we communicate and diagnose the potential issues with our clients current business structure. Followed up with a full detailed report that offers them the different options the firm may have to successfully manage their risk. ASK Consultants believes that with the support of their clients and commitment of their employees we can help maintain and grow their current business plan.

Our Risk Management objectives are to:

1. 2. 3. 4. 5. Integrate Strategic Risk Management throughout the culture of the organization. Identify current and future risks associated with our clients business. Identify if the company is in good legal standing and prepared for future legislation. Implement loss control techniques to improve safety and awareness. Help maintain and grow your organization.

These objectives will be achieved through:

1. Establishing the importance of risk awareness throughout all levels on the company. 2. Taking an in-depth look at the organizations current business plan including contracts, financial statements, and a walk through of day-to-day operations. 3. Recommending our clients seek legal council to ensure they are operating their business in a lawful manner. 4. Recommended our clients loss control options we believe are best suited for them after conducting a full risk analysis. 5. Help maintain and grow your business by successfully reducing your companys risk to a manageable level.

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PROGRAM ORGANIZATION
Implementing the suggestions we have provided may seem like a daunting task, but with careful planning and dedication it can be accomplished in a timely manner. This section of the report is built to help guide GPA in the right direction when making risk management choices. It is our recommendation that GPA executives first determine whether or not they see a need for a HR department, as this will determine who is responsible for managing the employees. As explained in the risk identification section, it really is up to GPAs executives if they need one or not. If the current system works and they determine their employees are successfully communicating with them then there is nothing to change. However, if GPA sees room for improvement between the employee and employer than developing an HR department will be beneficial if it is worth the cost. If they choose to not implement an HR department, it is recommended that GPA executives form a risk management team using key executives and employees to help coordinate and implant their risk management goals into the company. These key executives and employees will be strategically selected based on location, position, and performance. These key employees will be responsible for promoting safety at all times, dealing with employees in all aspects, and making sure the firm is risk averse in its daily operations. On the other hand, if GPA chooses to implement an HR department (in-house or outsourced) then the HR department head would be responsible for implementing much of the recommended programs. A HR department is generally responsible for hiring and firing of employees, proper employee training, managing workers compensation, payrolls, and staying on top of employer legislation. Overall, it is our recommendation that GPA outsource their HR department to a Preferred Employer Organization. GPA is currently growing and is a midsized business with nearly 140 employees. Properly managing and taking care of 140 employees can be costly and administratively frustrating without the proper knowledge and resources. These organizations are specialized in managing businesses human resource departments and will allow GPAs executives to stay focused on its core business goals while keeping their employees happy. Thus, it is our belief that the best option for GPA is to allow a PEO to handle all of the employee management tasks. For more information on PEOs and their benefits please refer to Appendix L for more information on PEOs. When it comes to insurance buying and insurance decisions we strongly suggest that GPA seek guidance from their local agent, broker, or a certified insurance expert. Insurance policies are filled with terminology and selective wording that the average person may not fully understand. Many times without proper knowledge of the insurance policy people falsely believe they have coverage in situations when the truly do not. Thus, it is highly recommended GPA to seek insurance advice from a certified insurance expert to make sure they have proper coverage that suits their business needs.

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It is also recommended that when consulting a certified insurance expert to present them with this detailed report to help them identify and treat risk exposures they may have missed. Our report is filled with loss control suggestions, insurance coverage options, and workbook analysiss to help guide GPA in the right direction. By sharing the knowledge you have received through our detailed risk report with that of an insurance expert GPAs overall risk can be successfully managed at an affordable level. Finally, it is recommended that GPA hire legal help to review all of their current and future contract arrangements. Many times like people, companies sign on the dotted line before understanding in full the details of the contract. Additionally, like insurance policies, contracts also have specific terminology and selective wording that dictates whom is responsible for what. This can confuse the average person and leave them confident they are not responsible for something when in reality they are. Therefore, we strongly encourage GPA to review their current and future contract arrangements with the help of a certified legal expert.

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VI. APPENDIX

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