Question 1

Which of the following are usually classified as functional areas of a business?

Accepted Answer

Production, human resources, and finance are all considered functional areas of a business because they are essential to the operation of the business. Production is responsible for creating the goods or services that the business sells, human resources is responsible for managing the employees of the business, and finance is responsible for managing the financial resources of the business.

Question 2

In which of the following circumstances would an organization consider self-insurance to be an option?

Accepted Answer

Self-insurance is considered when an organization decides that retaining the risk (i.e., covering its own losses) is more appropriate or cost-effective than transferring the risk to an insurance company. This decision is often based on a thorough risk assessment and the understanding that the organization can manage potential losses internally.

Question 3

A newly opened hotel has purchased a liability insurance policy in order to address occupier's liability due to slips and falls on the hotel premises.What legal risk management step is the hotel engaged in?

Accepted Answer

The hotel is engaged in risk transference by purchasing liability insurance to transfer the financial risk associated with slips and falls on the premises to the insurance company.

Question 4

What is the most critical step in the development of a legal risk management program?

Accepted Answer

Identifying risk is the most critical step in the development of a legal risk management program because it serves as the foundation for all subsequent steps, such as assessment, mitigation, and monitoring. Without first identifying the risks, an organization cannot effectively manage them.

Question 5

Why does one assess the severity of potential losses when creating a legal risk management plan?

Accepted Answer

Assessing the severity of potential losses helps prioritize identified risks and guides the process of managing those risks effectively.

Question 6

A company operating a dating website for married individuals has identified that technology-related risks,including the possibility of infiltration of its customer database by hackers,could pose a hazard to the company and its customers.What legal risk management step is the company engaged in?

Accepted Answer

The company is in the process of evaluating potential risks, which is the first step in legal risk management. This involves identifying possible hazards that could impact the company and its stakeholders.

Question 7

Benta recently purchased an office cleaning business with established long-term contracts to provide cleaning services to a number of large office building operators.Which of the following actions would immediately allow Benta to be aware of the potential legal risks with the building operators?

Accepted Answer

Reviewing contracts and customer payment history allows Benta to understand the terms, obligations, and any past issues with the building operators, directly highlighting potential legal risks.

Question 8

What is the defining feature of an 'all-risks' insurance policy?

Accepted Answer

An 'all-risks' insurance policy is characterized by covering any risk that is not specifically excluded in the policy document. This means that unless a particular risk is explicitly mentioned as not covered, it is assumed to be covered.

Question 9

A staff member employed in the purchasing department has been experiencing a number of sexually harassing telephone calls from a sales representative of a new supplier.The matter is referred to the legal risk management department for analysis.Which function of the business must be analyzed?

Accepted Answer

The answer of A staff member employed in the purchasing...

Question 10

A food producer inadvertently labelled a batch of a food product incorrectly,indicating it was sulphate-free when sulphate was a standard ingredient.A number of incidents involving severe allergic reactions resulted in the product's removal from shelves and fines levied.What business function did this legal risk rise from?

Accepted Answer

The answer of A food producer inadvertently labelled a batch...

Question 11

Big City Taxi plans purchased an insurance policy for its fleet of vehicle that includes a $1000 deductible for each claim made against the policy.Which legal risk management strategies is Big City Taxi engaging?

Accepted Answer

Big City Taxi is engaging in transference and retention as part of its risk management strategy. By purchasing an insurance policy, it transfers the risk of large financial losses to the insurance company. The $1000 deductible represents the retention aspect, where the company retains a portion of the risk (up to $1000 of loss per claim) itself.

Question 12

A private investment firm that deals exclusively in derivative investment products is concerned its market activities may become regulated.What measures should the institution take to begin to address its concerns?

Accepted Answer

Managing legal risk with a plan to prevent loss is essential for a firm dealing in derivative investment products, especially when concerned about potential regulation. This involves understanding and complying with current regulations, anticipating changes in the legal environment, and implementing strategies to mitigate risks associated with non-compliance.

Question 13

A cost-benefit analysis is conducted to assess the benefits of substituting a key compound in a herbal health specialty product formula.The substitution would involve the use of an untested inexpensive compound.What business function should be analyzed for legal risk?

Accepted Answer

The substitution of a key compound in a product, especially one that is untested, poses potential legal risks related to safety, regulatory compliance, and consumer protection. These concerns fall under the production function, which is responsible for the creation and modification of products.

Question 14

What set of methods is used when forming a risk management plan to limit exposure to legal risks?

Accepted Answer

The methods used in forming a risk management plan to limit exposure to legal risks include avoiding the risk, reducing the impact of the risk, transferring the risk (often through insurance), and absorbing the risk (accepting the consequences and budgeting for it). These strategies help organizations manage and mitigate potential legal issues effectively.

Question 15

Risk management is best viewed as a task that should be carried out by whom?

Accepted Answer

Risk management is most effective when it involves managers and employees at every level of the organization, as it requires a comprehensive approach and input from various perspectives to identify and mitigate risks effectively.

Question 16

Barrick Homecare Ltd.plans to introduce a health and safety system that will require reporting of workplace accidents and which will promote a culture of safety in their workplace.What type of risk management plan is Barrick using?

Accepted Answer

Barrick Homecare Ltd. is implementing a risk reduction strategy by introducing a health and safety system that aims to lower the likelihood and impact of workplace accidents through reporting and promoting a safety culture.

Question 17

What approach to managing interaction with the law and legal issues has the following distinguishing characteristics: compliance with legal requirements and anticipation of changes in the legal environment?

Accepted Answer

The answer of What approach to managing interaction with the...

Question 18

Why is the inclusion of a limitation of liability clause in a commercial contract considered to be an effective solution for business legal risk management?

Accepted Answer

Limitation of liability clauses are designed to cap the amount a party may have to pay in the event of a breach, thereby limiting their financial exposure and providing a measure of predictability and control over potential losses. This helps in managing legal risks by setting clear boundaries on potential liabilities.

Question 19

Prior to completing the financing arrangements needed to fund the purchase of an IT consulting firm,Albert Brinkman met several times with his bank and his accountant to review the terms of the bank's financing offer against the business's financial statements.What activity and corresponding step in the legal risk management process is this?

Accepted Answer

This activity is part of identifying risk in business decisions, which is typically the first step in the legal risk management process. By reviewing the financing terms against the business's financial statements, Albert Brinkman is identifying potential financial risks associated with the purchase.

Question 20

Which legal risk management process is most appropriate when the risk is simply too great or when the undesirable result of the activity,product or service is greater than the advantages?

Accepted Answer

Risk avoidance is the most appropriate process when the risk is too great or the undesirable outcomes outweigh the advantages, as it involves not engaging in the risky activity, product, or service at all.

Quiz 3: Managing Legal Risks