Page 30 - EBOOK RISK MANAGEMENT

 Direct loss

Physical damage to the property itself. As an example, Mr. Amir’s owned a
workshop and it was destroyed by fire. The loss of value of the workshop is a

direct loss suffered by Mr. Amir.

 Indirect loss

Financial losses inconsequence of direct loss event. For example, Mr. Amir
workshop has been damaged. He now facing a business interruption that may

lead to loss of income. His workshop need to be closed while repair work has
been carried out. Hence, consequential or indirect loss that could be incurred

by Mr. Amir is loss of profits and loss of business opportunies.

 Extra expenses

Extra expenses incur as a result of the losses. As an example, Mr. Amir will need

an extra expenses in term of cost of rental for a temporary workshop while his
workshop is under repair.

3.3.3 Liability Risks

Liability risks are risk are being sued by another person due to negligence or

wrongful act which caused bodily injury or property damage to another person. It
also known as legal risk. For example, let say Ayesha was driving at late of night

after tiring out for work. As the result, her car collided with another car causing
damages to both cars. In this situation, the other car owner may sue Ayesha for

negligent conduct and demand compensation for damages and injuries.

3.3.4 Financial Risks

The financial risk refer to financial assets’ value that are subject to fluctuation. The
changes in inflation and real value of stock and bonds owned by individuals may

affect their financial assets’ value. As for business, the unexpected changes in
expected future cash flows are major source of fluctuation in business value. For

example, fluctuation in commodity prices such as palm oil may result in increasing

of price and reduction in the supply of related products.

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