PFMBM_Answer Booklet_Chapter 2_VR250124 (1)

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Principles of Finance and Mortgage Broking Management (PFMBM) Student Assessment Booklet Name: Rafael Dugandzic Date: Manual Version Number: VR220622

PFMBM: Chapter 2 Please note: It is a requirement for students to make their submissions using this electronic assessment booklet. At the facilitator’s discretion any submissions made in another format may not be accepted. If you are completing the course via various computers, please save the one booklet on a USB so you can send the submission in using the one file Getting Started Please insert your NAME, DATE and the Manual Version Number on the first page of your Assessment Booklet. Answering Assessment Questions Each Assessment Booklet contains blank spaces for following assessment items:  Short Answer Questions When submitting Assessment Booklets for marking, please ensure that the entire booklet is completed in typed format only. Short Answer Questions Using the space/s provided, please complete your answers making sure to:  Please restrict your answers to no more than 300 words per question  Please include any calculations that you used to reach your answer Referencing Your Answers Students undertaking the course must exhibit a range of skills in order to be confirmed as competent in their course. These skills include:  Understanding a question.  Possessing knowledge about the issue, which in some assessments includes locating information from references.  Providing an answer, this shows personal understanding. Please make sure that all assessments are documented in a way that exhibits your personal study and/or research. To that end would you please acknowledge all material and sources used in the presentation of your assessment whether they are books, articles, reports, Internet searches, or any other document or personal communication. For example if:  An idea is sourced; reference it e.g. (Bagra 2010).  You are directly quoting, wrap it in quote marks e.g. “Tom Horner sat in a corner” (Peters 2007 page 7).  You are quoting from the internet include quote marks and the web reference e.g. “ban on conflicted remuneration structures including commissions” < http://futureofadvice.treasury.gov.au/content/Content.asp x?doc=reforms.htm> accessed on the 28 th of December 2012. *This includes AI platforms. Please note that no more than 5% of direct quoting which is referenced is deemed to be acceptable and no amount of direct quoting without referencing is deemed acceptable. Any direct quoting should form only a small portion of any International Institute of Technology © 2 VR250124

PFMBM: Chapter 2 answer and the answer should demonstrate the student understands and can interpret the question and provide an appropriate answer. Whilst this will require more work for you I hope you will understand that we are trying to maintain high standards and support your progression into further qualifications. Document Naming Instructions: Save this file to your computer and please use the following protocol when naming the file: SUBMISSION this relates to the number of times the file has been submitted. For example, your first submission would be S1, with any re-submission the file name should be recorded S2. Note: If you are submitting handwritten assessments all questions must be completed in blue or black pen. If assessments are received in pencil or with illegible handwriting, a resubmission will be required. Note: It is your responsibility as a student to keep a copy of all assessment submissions. IIT do not take responsibility for the loss of any submissions. Distance Education Students Student Declaration I understand that by completing this form I am bound by the following declaration. To the best of my knowledge and belief, no part of this assignment for the above unit has been copied from any other student’s work or from any other source except where due acknowledgment is made in the text, or has been written for me by another person. Name: Rafael Dugandzic Date: International Institute of Technology © 3 VR250124

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PFMBM: Chapter 2 Short Answer Question 1 Identify the most common risk assessment techniques. The most common risk assessment techniques are: -Questionnaires and checklists – used in collection of information to assess which risks are prevalent within the organisation. -Workshops and brainstorming - used to collect ideas from staff as well as identify stakeholder appetite. -Inspections and audits – doing physical inspections of the organisations premises as well as reviewing current procedures and systems. -Flowcharts and dependency analysis – useful to highlight critical areas for improvement. -HAZOP and FMEA approaches – these are technical failure analyses techniques used. -SWOT and PESTLE analyses – a good approach to risk recognition. -Scenario Analyses/thinking/planning – a great tool to future plan any scenarios that might change within the industry. Short Answer Question 2 Briefly explain external and internal risk drivers. External and internal risk factors that can affect a business can fall into a few categories. Externally driven factors can include such things as industry changes, customer demand, competition, foreign exchange rates, interest rates, public perception and of course regulator enforcement. Internally driven risk can incorporate things such as liquidity and cash flow, IT systems, health and safety, fraud, intellectual capital, research and development, board member interaction and investment of capital. Short Answer Question 3 Outline the risk management process and briefly explain four treatment options available to manage risk. International Institute of Technology © 4 VR250124

PFMBM: Chapter 2 The risk management process allows an organisation to manage and identify risk within an organisation, understanding these risks and putting controls in place to manage these risks. Understanding these risks and then managing them allows an organisation to allocate funds in an effective manner. An effective risk management process also allows for transparent decision making and of course also provides an effective audit trail. Having an effective risk management process in place also promotes a pro-active team and management culture within the organisation. The four treatment plans to manage risk are: -Mitigation of risk(Treat): By reducing the probability that the risk will occur or by reducing the severity of that particular risk to the organisation. -Avoiding risk(Terminate): By not taking on the risk at all for the organisation. -Tolerating risk(Tolerate): This means that the risk is highly unlikely to occur for the organisation or that the risk is unlikely or not too great a risk for the organisation. -Transfer of risk(Transfer): To greatly reduce the risk exposure an organisation can be seen to be transferred to another party. Short Answer Question 4 Monitoring and review are related processes in risk management. Briefly explain the distinctions between the two. International Institute of Technology © 5 VR250124

PFMBM: Chapter 2 Monitoring and reviewing processes within the risk management process are two of the most important factors in mitigating risk within an organisation. It needs to be a fluid process for both the review process and the monitoring process, as dynamics change quickly within an organisation, meaning that some risks can change form, other risks can completely disappear and some new risks can arise. Monitoring and the review processes allow an organisation to make sure the information that arises from risk management is used and implemented as an effective strategy for the organisation. Monitoring is ongoing and checks on internal and external factors. Reviewing is a periodic process that has a specific focus on particular risks. International Institute of Technology © 6 VR250124

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PFMBM: Chapter 2 Short Answer Question 5 When assessing risks in relation to the treatment options, what are the 3 main indicators you would look for when evaluating the treatment options to determine their effectiveness? The three main indicators that I would look for are: -How will the treatment impact the level of risk. Any treatment options that reduce the level of risk should be considered. -Costs of implementation versus benefits derived. There may be options that are not economically viable for the business to undertake -Compatible with agencies objectives. Treatment options that are not in line with an organisation’s objectives, culture or company procedures cannot be accepted. Short Answer Question 6 Harry Hausmann approaches NATWHICHPAC BANK to arrange finance. Harry explains to you that he wants to expand his small pyrotechnics business to a larger-scale operation. He has just successfully negotiated a long-term contract with the local ‘WACKER SPEEDWAY’ to exclusively supply and create the fireworks displays for all of their special events, which are held on three days and evenings of each fortnight. Harry has an unencumbered property that he wishes to use as collateral for a loan. The property is a large modern ultimate beachfront home on a 400m square block at Kirra Beach on the Gold Coast, abutting the beachfront sands. Under the terms of the contract with the speedway’s management, Harry’s company will be paid only ¼ of the agreed fee for an event, if the fireworks display is cancelled by management up to 48 hours before the scheduled event time, (which would occur upon the Bureau of Meteorology predicting a likelihood of moderate to heavy rain, for any planned date). If cancelled within 48 hours of the event Harry’s company is to be paid the full negotiated fee. While Harry’s company has some other occasional or semi-regular clients that he maintains, the speedway represents a large step up for his International Institute of Technology © 7 VR250124

PFMBM: Chapter 2 business and his scale of operations, which is why the loan is very important to him. He needs to put on an extra 5 skilled workers to assist in setting up and letting off the fireworks displays for each night’s events. The set up takes them roughly two days’ work at the venue, once the pyrotechnics materials arrive at the site. Harry imports his fireworks from China and will need to order in larger amounts to fulfil the contract. At least three of his workers are to be positioned in the interior of the speedway field while some of the races are still on, before the fireworks begin. They are required by the internal safety policies of the speedway to wear protective headgear (which Harry must provide), while they are inside the speedway field. Harry proposes that the increased revenue from this contract will easily cover the repayments on a loan, once the new contract is up and running, provided the weather holds good for roughly half of each fortnight’s planned events. Harry also says if it will help his application for finance, he is prepared to have special uniforms made for all his workers, highlighting the NATWHICHPAC logo prominently as esteemed sponsors. Your manager, Ezekiel Slater, is an unabashed opportunist whose ethical position relates more to profitability than morality. He sees the proposed sponsorship arrangement as a profile-building exercise for himself if he can match financial strategy with marketing strategy. Keen to rise quickly through the ranks through self-promotion rather than hard work, Ezekiel instructs you to give this matter your full attention. Activities: a) Using your research skills and the resources provided, prepare a brief typed report in the box below (short statement) to present to Ezekiel, regarding Harry’s loan prospects. As the report is for your manager, be sure to edit and proofread it. The report must: i. Identify the risks or risk clusters arising in this scenario. The risk or risk clusters that arise in this scenario are as given below. Compliance risk Environmental risk financial risk ii. Rank the risks as between each other. International Institute of Technology © 8 VR250124

PFMBM: Chapter 2 Risk should be ranked as follows- Financial risk (1st rank) Compliance risk(2nd rank) Environmental risk (3rd rank) iii. Assess the risk exposure from the point of view of the financier in terms of risk criteria, likelihood, impact and consequences. Environmental risk-Hary will only be compensated with one-fourth of the total if the administration decides to postpone the events due to moderate to heavy rain. Possible consequences - Disruption Financial risk- Hary is significantly reliant on the Wackers speedway deal, which poses financial risks. Possible consequences- A lack of cash flow and the potential shutdown of the entire operation. Compliance risk- Hary is responsible for giving the worker's safety helmet. Possible consequences- Fines or legal issues. iv. Compare exposure levels with industry and statutory obligations, identify any unacceptable residual risks, and then outline the forms of risk mitigation that Harry or the financier could adopt. Avoid financial risk. Environmental risk classification as tolerable. Compliance risk-Mitigation As unacceptable residual risks, financial risk and compliance risk can be mentioned. Harry needs to follow all health and safety regulations and not rely on only one consumer. v. Recommend risk control measures or improvements that International Institute of Technology © 9 VR250124

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PFMBM: Chapter 2 might apply in this case and how they can be easily implemented. ERM- Controlling all major risk classes (credit, market, liquidity and operational) Harry shouldn't take a big loan as the business depends a lot on weather, man power, shipping and the new vendor. He should take one step at a time starting with a lesser amount of loan. He can borrow later when the business gets a stable income b) Identify some of the stakeholders that might be relevant to the process of potential risk control and/or mitigation, and which laws and/or organisational guidelines protect them. The stakeholders are Harry Hausmann and employees & Natwhichpac Bank The organizational guidelines that protect them are ISO 31000 as AS/NZS ISO 31000:2009 Risk Management c) Suggest what interactions with the stakeholders might be considered by Harry or the financier and how these would impact on your implementation of a treatment plan. Harry should reconsider his business plan as it involves high risks. If he still wants to go ahead with his plan then all the compliance requirement needs to be met. The environmental risks needs to be considered and also the financial risk that hes getting into. He should take an insurance to protect himself. He should take adequate actions to mitigate the risks. d) Assume you are acting as an independent finance/mortgage broker rather than as an employee of NATWHICHPAC. i. Identify several ways your role would differ for this finance application. International Institute of Technology © 10 VR250124

PFMBM: Chapter 2 I would ask Harry to take necessary precautions to mitigate the risk 2.Advise Harry to take a lesser amount of loan and then increase as per needs arise. 3.Would advise Harry not to be desperate and think over as this deal consists of a lot of risks. 4.I would advise Harry to take insurance as well that would cover him, his company, material and his employees for any unforeseen circumstances and put him across an insurance agent who can give him correct advise. ii. Consider the auditing risks in your area of operation and the kinds of guidelines that would apply, and then discuss how you would implement relevant control measures to address the risks and meet the guidelines. Physical inspection of the premises and activities and audits of compliances with established system and procedures. Internal and external audit also plays an important role in verifying application of risk management process. The organizational guidelines that protect them are ISO 31000 as AS/NZS ISO 31000:2009 Risk Management iii. Take one of the abovementioned control measures and describe how you would monitor and review it against specific measures of success. Enviromental risks: I would check the detailed description and frequency of it. So under Environmental risks, it is most certain that rain or bad weather would occur more than once a year. So it is going to affect his new business iv. Name examples of low, moderate and high risks that present in this case study. Low risk: Compliance Risk- The employees are required by the internal International Institute of Technology © 11 VR250124

PFMBM: Chapter 2 safety policies of the speedway to wear protective headgear (which Harry must provide), while they are inside the speedway field. Moderate risk:Financial Risk: Harry has an unencumbered property that he wishes to use as collateral for a loan. The property is a large modern International Institute of Technology ©12VR230123 PFMBM: Chapter 2 ultimate beachfront home on a 400m square block at Kirra Beach on the Gold Coast, abutting the beachfront sands. High risk: Environmental Risk: Under the terms of the contract with the speedway's management, Harry's company will be paid only ¼ of the agreed fee for an event, if the fireworks display is cancelled by management up to 48 hours before the scheduled event time, (which would occur upon the Bureau of Meteorology predicting a likelihood of moderate to heavy rain, for any planned date). If cancelled within 48 hours of the event Harry's company is to be paid the full negotiated fee v. Outline three risk management processes that an external auditor may look for in reviewing a client’s file. Physical inspection of the premises and activities and audits of compliances with established system and procedures. Internal and external audit also plays an important role in verifying application of risk management process e) Compare and contrast the risks that exist in this case study against the risks that relate to investing in property. Investing in a business is different than investing in a property. In property investment, environmental risk is not much of a concern as compared to a business that depends on fireworks. The interest rate is higher in a business loan because of the risk factors involved. Compliance risk is involved as the headgears needs to be supplied to the workers and they must wear them whenever they work. The property loan most of the time pays off as the prices increases but once theres a business loss its difficult to recover the losses and Harry is anyway mortgaging his house to get loan. Resources to support completion. International Institute of Technology © 12 VR250124

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PFMBM: Chapter 2 Resources to support completion:  Australian Risk Standard 4360  AS\NZS ISO31000:2009 Risk Management – Principles and Guidelines  NATWHICHPAC Accountability Organisational Framework of roles and responsibilities  Risk Management Checklist (see Table 11 in manual)  http://www.bankersonline.com/ *Make sure you reference any external links or information you have sourced from websites etc at the end of your booklet or response. International Institute of Technology © 13 VR250124

PFMBM_Answer Booklet_Chapter 2_VR250124 (1)

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