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13 May 2020  (568 Views) 
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Out of the box


A risk management issue
I wish to pose a risk management issue for you to consider.

A low income family has a small amount of savings. They have a child who is seriously ill. The medical expense will wipe out the entire savings. The chance of survival is low.

Should the family use the savings in an attempt to save their child? The parents want to do the best they can for the child.

This is the next part of the issue. The family has three other children. If they spend all their savings, the family will not have enough money to feed these children and they may suffer from malnutrition and become sick as well.

What should the family do?

In risk management, the family has to look at all possible options and evaluate the severity (i.e. amount of the loss) and the frequency (likelihood) of any particular outcome.

The outcome, i.e. severity X frequency, becomes the cost of risk. The family has to consider the cost of risk for the various option and make their choice.

They cannot just adopt the concept that they should do all the best they can for their sick child, because they have other responsibilities as well.

Tan Kin Lian
 


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