Question 1

 

A hotel chain wants to develop a hotel and marina complex with a boat harbour for 300 boats in a sleepy coastal village endowed with abundant natural beauty. The location is only 2-3 hours drive from a major city and market projections have indicated the project is a winner.

 

Being in an environmentally sensitive area with no established infrastructure in the vicinity, the company has included a sewage treatment plant in the project. The plant would treat both the sewage from the hotel and the bilge pump out from boats in the marina.

 

The local oyster industry is renowned for producing good quality oysters in a relatively pristine and unpolluted area, and is extremely concerned about effluent discharges, fuel spills from the refuelling of boats and other environmental impacts that would adversely affect the industry. There are also issues relating to diesel and petrol transport and storage for the marina, anti-fouling chemicals used for the undersides of boats, and LPG transport and storage at the hotel in the absence of piped natural gas supply.

 

Soil testing has shown that much of the soil to be excavated and removed as part of the marina construction process contains acid sulphate and will need to be disposed of in a relatively secure landfill.

 

Some local residents in the village are outraged that lifestyle and amenities would be lost if the project were to proceed. The local Council supports the project, because it will create employment in an economically disadvantaged area

 

The company, while still wishing to proceed with the development, is concerned that the capital cost might blow out and make the projected return on investment unachievable.

 

a) What types of risks are associated with the development?

b) Who will be affected by the development?

c) What are the various types of risks faced by each party?

Total Marks – 15

 

Question 2

 

Kevin is a structural engineer who worked for an engineering construction company for over ten years. As the economy shifted its focus from manufacturing and construction to service industries in the late 1990s, Kevin found himself out of work as a result of a company restructure. It took about three months to find another job, and his experience helped in securing one. However, five years later history repeated itself and Kevin again found himself out of a job.

 

This time Kevin decided that he would become self-employed and start his own small consultancy, specialising in the restoration of heritage buildings. At least there was steady work available in that area. Besides, there was a craze to construct new buildings in the heritage style, and Kevin’s expertise was soon sought after.

 

Kevin very soon found that he had to take on two other people to support the work. At the same time, he also found that in all the contracts that he was asked to sign (by prospective clients and contractors to which Kevin’s company was sub-contracted), the client demanded to be indemnified against all losses arising from Kevin’s work, with no limitation on the liability.

 

Kevin found himself having to make hard choices. He could insist on the liability being limited, but at the risk of the client deciding to give the work to someone else. As many clients were letting their lawyers decide on liability issues, their approach was increasingly ‘take it or leave it’. Alternatively Kevin could take higher insurance cover against professional indemnity, but he feels the premiums are prohibitive. Or he could simply sign the contract and hope that nothing goes wrong.

 

a) Identify the risks faced by small companies like Kevin’s.

b) Using a risk management framework, develop a risk management strategy that Kevin could adopt to manage the risks.

Total Marks – 15