Buenas Empanadas Analysis

Buenas Empanadas, Inc

Case Study

Name:

Student ID:

RMIN 5950

Dr. Robert E. Hoyt

Group Members: Smitha Kar, Hyun Kim, Sahib Singh, Dhruv Patel, Brady Ellis

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY

II. INTRODUCTION

III. RISK IDENTIFICATION AND VALUATION

A. Direct Property

1. Buildings

2. Improvements and Betterments

3. Personal Property

B. Indirect Property

1. Business Interruption

2. Contingent Business Interruption

a) Recipient

b) Contributing

3. Extra Expense

4. Building Ordinance

5. Leasehold Interest

C. Liability

1. Premises and Operations

2. Products

3. Auto

4. Advertising

5. Employment Practices

6. Professional

7. Contractual Liability

a) Leases

b) Other contracts

D. Personal

1. Workers’ Compensation

2. Business Continuation

3. Employee Benefits

E. Crime

F. Other Business or Operational Risks

IV. RISK TREATMENT

A. Retention

1. Retention Capability

2. Retention Options

B. Insurance and Risk Financing

1. Property Insurance

2. Liability Insurance

3. Workers’ Compensation

4. Alternative Risk Financing Options

C. Loss Control

1. Property

2. Liability

3. Crime

4. Fleet

5. Personal

V. RISK ADMINISTRATION

A. Policy Statement

B. Program Organization

VI. APPENDIX

A. Workbook Printouts

I. EXECUTIVE SUMMARY

Buenas Empanadas is a nationally renown culinary cuisine of the Latin American variety

family of foods. To build a world class risk management program is key in Buenos Empanadas

survival within this particular sector of world cuisine. To engineer a professional risk program

for handling the risk mitigation techniques at hand would be extremely beneficial to Buenos

Empanadas and would largely benefit the owner Tom Weaver, and his entire family franchisee to

a broader extent. While preserving Buenas Empanadas attributes, quality, and services provided.

Buenas Empanadas operates as in an incorporated business with percentages allocated to each

different person that has a vested interest in the entire business, financial protocol, and the

operations of the business. With seven different distinct locations and one web order entity, it is

imperative that Buenas Empanadas secure a properly allocated Risk Portfolio to circumvent in

the event the losses that may occur due to the loss of business, employee injury, crime, property

and casualty and also general risk mitigation techniques and loss exposure resistance. Ten

different owners have a vested interest, and this is a pivotal number to pay extreme attention to

when risk exposes itself whether directly or indirectly.

II. INTRODUCTION

Buenas Empanadas is an Argentine-themed restaurant that specializes in empanadas. The

company increased in size tremendously after it’s opening in 2003. The company has five

locations: Atlanta, GA, Gainesville, FL, Athens, GA, Columbus, OH, and Nashville, TN. It’s

important to note that each location functions differently from one another. The company’s

headquarters is located in Atlanta, GA. Buenas Empanadas has come into contact with vast

amount of risk exposures especially with claims involving operations, food safety and injury.

Worker’s Compensation claims have become a huge issue with incurred claims expenses valued

at $$1,066,500 during 2011 to 2015 and paid claims expenses valued at $640,400 during 2011 to

2015. Such high claims and losses should be carefully analyzed from a risk management point of

view. Risk Management techniques will substantially help Buenas Empanadas.

III. RISK IDENTIFICATION AND VALUATION

Direct Property

Buildings

Buenas Empanadas operates at a total of five locations

Atlanta, GA - Headquarters

The Atlanta, GA restaurant is 1 story, 7750 square feet, and has been around for 30 years.

It is located in the Virginia Highland neighborhood just east of midtown. The building has a

replacement cost of $4,200,000 and actual cash value of $3,360,000. The location has dining and

serving equipment valued at $80,000. There is also $100,000 in freezers and kitchen equipment

because of the catering/online order kitchen. Furniture, accessories, and other items are valued to

be $45,000. There is a foot freestanding sign that is valued a $8,700. This restaurant has no

proper security system. The property has no security alarms, smoke alarms in the kitchen area, or

a sprinkler system. There are red flags everywhere when it comes to this restaurant and Buenas

Empanadas should make improvements as soon as possible before anything catastrophic

happens. If the company does not apply appropriate risk management techniques, they will most

likely suffer a very big loss sometime in the future and it would be very difficult for them to

recover.

Gainesville, FL

The Gainesville, FL restaurant is located right on Main Street in the heart of downtown in

a building that is 10 years old. The location measures out to be 3,250 square feet. The building

has a replacement cost of $1,200,000 and actual cash value of $1,080,000. The location has

dining and serving equipment valued at $80,000. There is also $75,000 in freezers and kitchen

equipment. Furniture, accessories, and other items are valued to be $45,000. There is a foot

freestanding sign that is valued at $8,700. The design of this restaurant has one critical flaw,

customers have to walk through a part of the kitchen to get to the restaurant. This is a huge

exposure because customers can slip and get injured in the kitchen. Also, the customers witness

how the kitchen operates which can cause bad reviews depending on their reactions. Unlike

some of the other Buenas Empanadas restaurants this location has a sprinkler system, this can

prevent some possible losses. Similarly to the Atlanta restaurant, this location has no security

system or smoke alarms. This is a huge red flag because at any time someone can steal the

expensive equipment in the restaurant. Also, the chance of a fire causing catastrophic losses is

higher without a smoke alarm system. Buenas Empanadas needs to make these improvements to

avoid large losses.

Athens, GA

The Athens, GA restaurant is located west of downtown near the intersection of Broad

Street and Hull Street in a 50 year old building. The building has a replacement cost of

$1,846,900. The building measures a total of 4,200 square feet and included a 1,500 square ft

kitchen. The location also has dining and serving equipment valued at $80,000. Similar to the

Atlanta location, the freezers and kitchen equipment are valued at $75,000. Furniture,

accessories, and other items are valued to be $45,000. There is a foot freestanding sign that is

valued at $8,700. The building was once a car repair shop and this history is a huge risk exposure

for the company. There is old engine oil buried beneath the back patio that needs to be properly

removed and disposed of. This is a huge red flag because local environmentalists will demand

studies that might jeopardize the reputation of the business. This restaurant also has no security

system or smoke alarms. There are old fire extinguishers in the kitchen that need to be replaced.

The company needs to add and update these devices as soon as possible to prevent any

catastrophic losses.

Columbus, OH

The Columbus, OH restaurant is the only leased building from which the company

operates. Buenas Empanadas has a 15-year lease with payments of $2,100 monthly. The

restaurant is located right in the center of the University district in a 12 year old building. The

building has a replacement cost of $1,075,620 and actual cash value of $946,546. At just 2,800

square ft, the restaurant is the smallest Buenas Empanadas location. Due to heavy competition in

the area, one operator added a 5-well bar which takes up about a third of the available dining

space. There is about $15,000 of specialized equipment and an average of $6,000 of on display

alcohol. In addition to these values, the restaurant has dining and serving equipment valued to be

$80,000, freezers and kitchen equipment valued to be about $75,000 and furniture, accessories

and other items are valued about $45,000. One red flag is that the restaurant has no security

system which means at any time the specialized equipment and alcohol can be stolen. This

restaurant has a sprinkler system but does not have fire extinguishers. The company should add

extinguishers to protect against fire exposure.

Nashville, TN

The Nashville, TN restaurant is an owned building with 3,750 square feet and includes a

1,250 sq ft kitchen. Buenas Empanadas bought the renovated four year old building in 2015. The

building is 100% sprinkler covered and has fire extinguishers that need to be replaced. It has a

replacement cost of $1,230,000 and actual cash value of $1,180,800. There is a value of

$253,700 in machinery and equipment.

Improvements and Betterments

All of the restaurants need improvement to prevent catastrophic losses. As mentioned

before, having sprinklers installed in the restaurants is crucial for the business to prevent the

severity of a loss. It’s important to take precautionary severity reduction measures such as

installing a sprinkler system because losses always happen. New and updated fire extinguishers

need to be added to prevent fire exposure. Buenas Empanadas should also consider adding

smoke alarms to alert the fire stations immediately. The old engine oil needs to be properly

removed from one of the locations to prevent any losses. All of these suggestions are great

examples of a loss reduction methods that will help to prevent the severity of catastrophic losses.

(ADD PAGE 16)

Personal Property

Business personal property can be defined as the building, equipment, fixtures and

furniture identified as owned by the insured in their line of business. Each location holds a

certain amount of average inventory. The Atlanta location has $33,000, the Gainesville location

holding $17,500, the Athens location holding $22,975, the Columbus location holding $23,750

and the Nashville location holding $18,200, which comes to a total of $115,725. All of the

locations are exposed to losses like flood, fire, theft, or any other types of accidents. Buenas

Empanadas has done a good job at separating and diversifying the contents across several

locations. The separation method works in Buenos Empanadas favor should an inventory loss

occur. Buenas Empanadas owns several vehicles for business operations two company cars for

both business and personal reasons as well as two vans used to get food to catering events. The

two company cars, 2008 BMW 332i and 2010 Mercedes-Benz GLK350, are valued at $39,450

and $36,000 respectively. The two vans used for catering purposes are a 2005 Chevrolet Express

valued at $9,000 and a 2015 Ford Transit Connect valued at $24,000. The two vans have been

involved in several accidents which resulted in huge losses for the company. A loss involving

these vehicles could occur at any time which could negatively impact Buenas Empanadas. In

addition, each location has a 10x10 foot freestanding sign valued at $8,700 each. It’s also

important to note that as of December 31st, 2015 Buenas Empanadas currently holds $115,725 in

inventory, as represented on their balance sheet. Risk management techniques will help secure

and prevent the loss of inventory should a loss occur.

Indirect Property

Business Interruption

To have a solid plan for business interruption contingency and continual operations and

continued income is at the utmost importance for Buenos Empanadas. An 80% coinsurance rate

was chosen for maximum protection and hedge for this important risk. The 80% coinsurance

rate translates to a 60% coinsurance rate to insurer up to value. An "Agreed Amount

Endorsement" enables the insurer and Buenos Empanadas to insure to full value. As a result the

endorsement increases the coinsurance rate by 10% using periods as a dependent variable.

Thirty periods is already includes, next sixty periods will be a 10% increase, followed by ninety

enabling a 15% increase and finally at one-hundred and twenty periods a 20% increase in

coinsurance exists.

Buenas Empanadas faces huge threat of business interruption. Buenas Empanadas is a

service oriented company, thus business interruption that results from indirect property losses

are a risk for the business. An fire, earthquake, or act of God could damage the restaurants

which would cause an interruption of business operations. Net sales would be greatly affected

should a loss occur to one of the restaurants. Buenas Empanadas’ exposure to a sales loss also

causes a loss in the inability to pay payroll expenses. The inability to pay employees should a

business interruption occur will make the employees angry and possibly quit their jobs. Also,

should a business interruption occur, the business could shut down operations due to the

inability to pay mandatory expenses. In addition to a direct loss of property, Buenas Empanadas

could face delivery issues. It is possible that the materials needed could lower production.

Contingent Business Interruption

When taking business contingency into perspective Buenos Empanadas is in dire need of a sophisticated

business contingency plan that includes business income, general liability insurance, and a revised

Workers Compensation plan that fits more efficiently with Buenas Empanadas risk profile. Buenos

Empanadas assets and net worth are on the better side of the fence but in no way close to the industry

mean due to many fallouts that occurred in the past and also Buenas Empanadas current reputation

regarding those unfortunate occurrences.

a. Recipient

Buenos Empanadas has many exposures that arrive from semi-responsible business practices and to add

on top of that situation Buenos Empanadas does not have a proper business contingency plan in force.

The use of third party local grown produce and ingredients has severely hurt Buenos Empanadas health

safety variable. Such as in Gainesville when customers obtained food poisoning, and also the Nashville

incident where E. Coli occurred and one individual ended up dying from the occurrence. Switching back

to U.S. foods is a business operations necessity at this point because the current food supply and delivery

method is corrupting the entire business model for Buenos Empanadas though the many losses that have

occurred can be attributed to general negligence deriving from Buenos Empanadas risk liabilities profile.

The biggest exposure of contingent business interruption is the use of the third-party meat

manufacturer in Argentina. If something in business operations was to occur in Argentina, the

butchery could permanently shut down. Buenas Empanadas does not have a contingency plan in

case of supply-chain issues that may delay an order. In addition to the meat manufacture in

Argentina, the business relies on a trucking companies to deliver the meat on time ad to the right

location. There have been several instances when shipments arrived later than scheduled, and an

order was unfulfilled. While purchasing meat from Argentina is a cost-efficient option, the

company should have butcheries in multiple locations especially locally rather than one location

and not diversifying. Buenas Empanadas has had bad supply chain activity locally as well. The

outbreak of E. coli cause four customers to be hospitalized. The situation hurt the restaurant’s

reputation significantly.

b. Contributing

When it comes to contributing parties Buenas Empanadas has lot of experience with bad

supply chain activity that affected the overall business in a plethora of ways. First of all, an E.

coli outbreak occurred when four customers were hospitalized when they ate at the Nashville

restaurant. They were tourists and one of the tourists ended up passing away due to this horrible

strain of virus. Buenos Empanadas later tracked the strain back from a farm in middle Tennessee

during their investigation of the contributing party. The event severely hurt Buenos Empanadas

reputation as a whole and Buenos Empanadas was never deserving of such a fall out due to

negligent supply chain practices. Business practices such as the pickup and delivery of steaks is

100% contracted type of work that also included unfortunate events in the past such as a truck

driver that had a crash on I-75 that compromised all the steaks on that particular truck from being

delivered on time. Buenos Empanadas estimated a loss of $10,000 from that occurrence due to

faulty supply chain mechanisms. Another unfortunate occurrence involving a truck arises when a

refrigeration unit broke on the truck and all the beef was spoiled resulting in $4,000 of beef lost

and revenue estimates of $7,000 lost for Buenas Empanadas.

Extra Expense

Buenas Empanadas can occur extra expense when it has one of the company’s vehicles is in the

automotive repair shop because of an accident that was caused by an employee on duty. The

expense has incurred by employee causing damage to other while on duty and also the vehicle in

the repair shop that was caused by the damage from the accident.

Building Ordinance

The building ordinance is entitles that Buenos Empanadas increase coverage by 15% with a 80%

coin insurance rate.

Leasehold Interest

Buenos Empanada's Leasehold interest is also an important mechanism and needs to be protected

by insurance protocols. The Leasehold interest rate consists of Extra Expense Coverage, and

Business Income from Dependent Parties. The Extra Expense charge has an 80% coinsurance

rate per hundred dollars and the Business Income from Dependent Parties consist of 50% of the

80% coinsurance building per hundred dollars of coverage.

Liability

Premises and Operations

Premises and operations liability include liability for injury or damage arising out of the

insured’s premises or out of the insured’s business operations while operations are in progress.

Most of Buenas Empanadas, Inc. biggest premises and operation liability happens at the

restaurant in Atlanta, GA. Before Buenas Empanadas, Inc. was expanded as headquarters, it was

used as a casual dining restaurant. It was later purchased additional 4,000 square foot when Tom

decided to expand the space into the corporate headquarters. In the process of renovation, the

location added 4,000 square foot to build a dedicated kitchen and storage area for filling online

orders. About 1,500 square foot of the new space was converted into the corporate headquarters

offices.

Now that this location is used as a catering kitchen, there are freezers and kitchen

equipment worth $100,000. After being in a new executive chef, Atlanta became a pick-up and

delivery location which created a lot of losses last summer while delivering the produces. Within

the office, there are no “best practices” signs for using the fryers, grills, or dishwasher. None of

the new employees are trained how to properly use each piece of equipment, and there are no up-

to-date OSHA health and safety posters in the employee break rooms. There was a recent

incident where an employee inadvertently splattered hot oil on her hands and arms and suffered

severe burns. Injuries at a restaurant are bound to happen.

Lastly, the restaurant in Columbus campus had failed the inspection after the Ohio department of

health paid a surprise visit. It forced the restaurant to close for three weeks because of the

number of violations. To make matters worse, Chris, the owner, was intoxicated and tried to

bribe the inspection to avoid the three week shutdown. The official felt offended by Chris’

behavior and filed a formal recommendation to revoke Buenas Empanadas of its operating

license. The main problem revolved around the fact that Buenas Empanadas had failed the

inspection meaning that the premises was not properly management in regards to safety,

cleanliness, and employee work ethics.

LOSS – 2015 Incurred Paid Open/Closed

Customer cut hand on rusty nail on waiting bench outside

$13,200 $5,300 O

Employee punched a customer 9,000 7,700 O

Truck driver slipped in loading dock area 8,000 7,200 C

Truck driver run over by employee 36,000 29,200 C

Employee punched truck driver 9,230 5,700 O

Supplier burned in chemical spill 9,000 6,600 C

Runoff from rainwater cause damage to neighbor facility

16,500 13,600 O

Customer slipped on spilled oil in kitchen 13,250 10,500 C

Customer burned hand on hot plate 9,000 8,600 O

TOTAL $123,180 $94,400

LOSS – 2014 Incurred Paid Open/Closed

Vendor electrocuted by exposed wiring $11,300 $11,300 C

Customer injured by falling box 6,000 6,000 C

Customer burned by spilled coffee 9,000 9,000 O

Truck driver injured by falling boxes 7,500 7,500 C

Inspector slipped on kitchen floor 18,000 18,000 C

Customer slipped on spilled water 11,100 11,100 C

Door slammed truck driver’s hand & broke several fingers

13,200 13,200 O

TOTAL $76,100 $76,100

Products

Buenas Empanadas, Inc. faces a product liability when it comes to the ingredients they use and

distribute for restaurants and catering. Buenas Empanadas, Inc. started sourcing authentic

Argentine products where appropriate. They buy all of its beef from a single Argentine butchery;

that requires payment in the local currency, the Argentine Peso. There is a high risk in obtaining

the beef from just one butchery. There also lies a risk of the conversion between different

currencies. Chef Julio does make sure that he prepares various cuts of steaks and distributes them

to each location based on anticipated demand. He checks to make sure all the meat is edible and

good to be distributed out to other places. Although he and Buenas Empanadas checks the meat,

there is a chance that some meats will be spoiled and Buenas Empanadas, Inc. will be held liable.

Before the company became a corporation, Tom had ordered all the food for each restaurant

from U.S. Foods. However, after Buenas Empanadas, Inc. has switched over to buying local,

organic ingredients there has been some problems. Customers in Gainesville have reported food

poisoning after eating a couple of times. Through investigation, Buenas Empanadas, Inc. found

that some of the eggs from a local farm were contaminated. The restaurant ended its professional

relationship with that farm immediately. Last year, a group of 12 tourists was in the hospital for

E. coli poisoning after eating at Buenas Empanadas. Most of the tourists were treated and

released after about 48 hours, but three remained in the hospital for over a week. Shortly after

one of three passed away due to kidney failure which was directly correlated to the E. coli

poisoning. As a result, the health department in Tennessee immediately launched an

investigation which led the Georgia department of health to also start its own investigation with

the corporate restaurant. The incident severely damaged the company’s reputation and was

featured on the 24/7 news for weeks.

Auto

Buenas Empanadas, Inc. has two ownership in company cars, two leasing cars, and two vans,

one for each catering location Atlanta and Athens. The two company cars are driven by Tom’s

children Chris and Sarah. Chris picked up a 2008 BMW 335i that cost $39,450, and Sarah paid

$36,000 for a 2010 Mercedes-Benz GLK350. Tom and Karen lease their vehicles and pay about

$1,750 per month. The Atlanta location owns a 2005 Chevrolet Express for $9,000 to help move

food around town. However, within two years after purchase the vehicle was involved in several

accidents. Last year, a high-school employee ran over a fellow employee’s foot while backing up

to deliver catering. Once the Athens location opened up, the 2005 Chevrolet Express was moved

to the Athens location and Tom purchased a new 2015 Ford Transit Connect for $24,500. Just

two trips after the purchased, the Transit Connect was involved in an accident on I-285 as an

hourly employee was returning from an event. Tom is currently thinking of providing corporate

employees with corporate cars. Currently, Buenas Empanadas does not provide any restaurant-

owned vehicles, but instead reimburses employees to use their own vehicles. Buenas Empanadas

accepts orders over the phone and sends an hourly employee to deliver anywhere in a 10-mile

radius of the restaurant.

Advertising

One of the ways Buenas Empanadas has been exposed to advertisement is by when a lady

customer felt violated and mistreated at the one of the restaurant location, when an intoxicated

employee was making sexual comments. The lady reported the information to the store manager

and later wrote a review on the restaurant. Another exposure of bad advertisement was when

there were over 10 tourists that were rushed to the hospital after eating Buenas Empanadas. One

of which who died, and they showed the traced it back to Buenas Empanadas and aired the

footage on the news 24/7 for a week.

Employment Practices

Employment practice liability is a law that concerns a company that participates in

wrongful termination, sexual harassment, discrimination, invasion of privacy, and breach of

contract. Like most other companies, Buenas Empanadas, Inc. is exposed to employment

practices. To start off, Buenas Empanadas, Inc. is not known to hire a particularly diverse

workforce. On some instances, qualified, minority applicants have complained that they were

passed over in hiring decisions. Some Buenas Empanadas locations have made many employees

to use their own vehicles because there is no company-owned truck. Many employees have

complained that they were never told they were required to make deliveries when they were

hired. Upon disagreement of using their own vehicle the employees were fired.

Buenas Empanadas, Inc. has to look carefully in where they let go of people because

wrong judgement can lead to lawsuits. For example, when an employee is injured on the job they

are quickly replaced, and are told to call when they are ready to work. In many cases, the injured

employees are not re-hired. In one case, an employee was injured with head trauma needed a

leave of absence. The employee’s absence has not made an impact on operations; in fact,

management has told other employees that he will not be put into schedule again even after full

recovery. Another incident last year, an employee was seriously injured to where he was

disfigured during the accident. The company is reluctant to bring him back and let him work

where customers might see him when he is ready to work again.

Professional

Professional liability concerns an employee that provides negligent professional services,

failed contractual promises, provides incomplete work, or makes an error or omission.

Professional liability are one of the most expensive liability a business owner can incur. In the

Athens restaurant, Sarah had received a phone call for an excellent job of catering service

Buenas Empanadas, Inc. provided. However, Sarah discovered that there was not a scheduled

catering event that weekend. She has also noticed the stock of chicken has been fairly low over

the past three months, and she feels that someone might be stealing food and hosting their own

catering events. There was another incident in Athens where an hourly employee was returning

from an event and got into an accident. After further investigation, the police concluded that the

employee had been texting at the time of the accident. The driver and other vehicle involved

complained of a back injury and has since filed a lawsuit against Buenas Empanadas, Inc.

Buenas Empanadas, Inc. has seen over the years an increase in the number of harassment-related

complaints in recent months. Complaints have come from both other employees and customers.

In one case, a male employee (who had allegedly been drinking on the job) made several

inappropriate comments to a female customer at the Nashville location. The customer filed a

sexual harassment complaint with Frank, the owner, before she left the restaurant. The same

customer days later posted her experience of Buenos Empanadas, Inc. online. This led to several

other customers to comment their similar experience of harassment. Frank had discovered that

each customer had been harassed by different employees.

Failure to conduct background checks has resulted in many problems. At Gainesville restaurant,

an employee was caught stealing customer credit card numbers while running dinner

transactions. It was later discovered that he had purchased over $60,000 worth of electronics,

furniture, and appliances. It led to several lawsuits against Buenas Empanadas, and cost PR a lot

of money while negatively hurting the company's’ image. In another case, an employee stole

over $2,000 in cash from the safe at the Nashville location after a busy weekend.

Contractual Liability

a. Leases

The only contractual liability for Buenas Empanadas, Inc. is the lease for the Columbus,

OH location. Buenas Empanadas, Inc. currently pays $2,100 a month or $25,200 a year. Buenas

Empanadas, Inc. signed the lease on May 1, 2012 for a 15-year term. Now being on their 5th year

term, the company has 10 years left in the leasing agreement. Since Buenas Empanadas, Inc.

pays $1,200 under the current market rate for comparable properties in the area, there is a chance

that Buenas Empanadas, Inc. will see an increase in rate the next time they have the option to

renew the rate.

b. Other contracts

Buenas Empanadas, Inc. is also part of other contracts that they face an exposure in. One

of these is the contract with a single Argentine butchery, which requires payment in Argentine

Peso. Another contract Buenas Empanadas, Inc. deals with is that most of the overseas beef has

to be shipped over by a shipping company. An import firm in Miami has agreed to help arrange

the shipment of the beef from Argentina. Logistically, Buenas Empanadas agreed on FOB point

of origin shipping terms, even though nobody in the corporate office is entirely sure what that

really means. Lastly, Buenas Empanadas, Inc. has signed a 10-year lease agreement with

ConnectFirst, an all-inclusive IT services company in July 2014. Some of the services include

computer equipment and phone services leading a total value at all locations to around $180,000.

Buenas Empanadas, Inc. pays a lot of money for the luxury of unlimited replacements, but

because the company is so small, that service is only used a few times a year.

Personal

Workers’ Compensation

Business Constitution

Employee Benefits

Crime

Other Business or Operational Risks

IV. RISK TREATMENT

Retention

Retention Capability

When it comes to retention capability, there are two different methods you can calculate it with. The first method is the total assets method. To calculate the total assets method, Buenas Empanadas needs to take 1% to 5% of their total assets in the year. 1% of their total assets comes out to $71052.1 and 5% of their total assets equals $355260.50. The next method is the working capital method, where you take 10% of the working capital of the firm. The working capital is total assets minus total liabilities, which equals $242,725. 10% of the working capital gives us $24272.50. When comparing these methods, Buenas Empanadas should use the working capital method and retain $242,725. Being able to retain a higher amount of risk allows the company to get lower deductibles when obtaining insurance.

Retention Options

There are multiple ways that Buenas Empanadas can choose to retain their risks. When it comes

to deductibles, there is a certain amount of money that the company will pay during losses before

insurance comes in. The higher the deductible, the more Buenas Empanadas retains more risks.

The current expenses of losses are when the firm budgets the loss paid out in the expenses

reported in the income statement. Unfunded reserves are when the company pays the loss as it

happens and funded reserves are the money set aside to pay for losses when it happens.

Insurance and Risk Financing

Property Insurance

Liability Insurance

Workers’ Compensation

Alternative Risk Financing Options

Loss Control

Property

Buenas Empanadas could benefit from a more rigorous loss control program. Severity reduction

measures should be taken, such as installing a sprinkler system, security systems, alarm system

and fire extinguishers. As mentioned earlier, management should also consider hiring a safety

team for the Athens location to come check the property every other month due to the fact that

there is still a possibility that that area is contaminated with old engine oil. Another option would

be to sell it and move to a different location. Proper risk management techniques will help secure

and prevent the loss of inventory should a loss occur, such as checking the inventory adjustments

reports daily and checking to make sure the inventory count is accurate. Buenas Empanadas

main source of beef comes from a single Argentine butchery. While importing this product from

Argentina is a cost effective option, the company should consider having other sources of beef

closer to the restaurants rather than having only one main source and not diversifying. To avoid

shipping losses, we recommend that Buenas Empanadas adds a shipping division to the company

and to hire one professional shipping company, as well as purchasing transit insurance and

implementing a driver safety program. This way it will reduce confusion and arguments between

multiple trucking companies, Buenas Empanadas’ products will be insured and the drivers

delivering the goods will not be reckless during transportation. In addition to these property loss

control techniques, having reserves set aside in case a loss is to occur is also crucial for business

operations.

Liability

Requiring new employees to sign a non-disclosure agreement in an effort to prevent

liability exposure should be implemented. A proper risk management program needs to be

implemented in order to make sure that reckless behavior is not allowed. Management needs to

step in to assist complications that may arise due to employee misconduct. There should be

stricter standards implemented regarding sexual harassment and discrimination in the workplace.

Implementing more policies regarding promotions could be of value to Buenas Empanadas due

to the losses that could be substantial with regard to discrimination in the workplace. A big

liability risk Buenas Empanadas might be exposed to is serving alcohol at their private events.

We recommend that Buenas Empanadas should limit alcohol usage by giving them a certain

amount of vouchers, have taxis on site for DD and purchase a liquor liability license. Another

recommendation would be to just remove alcohol as a whole and have security to avoid

smuggling. Standard company policies detailing how employees should be handling the

machinery and equipment would decrease the severity and the frequency of the claims being

made. Another liability risk is the exchange risk the company has when doing business with the

butchery in Argentina. We recommend reconfiguring contracts to make payments in American

dollars and purchase exchange risk insurance. Lastly, it is also recommended that Buenas

Empanadas set proper risk control methods, such as forming a contingency plan for contractual

liability and business continuation.

Crime

Buenas Empanadas deals with the potential crime risk of employees stealing customer

credit card numbers while running dinner transactions as well as stealing inventory/equipment.

To control this we recommend that there be a background check and an installation of security

system. Failure to conduct background checks caused a lot of problems for the company. One

employee was caught stealing credit card numbers and used those numbers to bu over $60,000

worth of electronics, furniture and appliances. The employee was arrested in the past for similar

crimes. This problem could’ve been avoided if the company did background checks on all the

employees. Also, one employee stole over $2,000 from a safe. If the company had a proper

security system this type of loss could have possibly been avoided. We recommend that Buenas

Empanadas purchases crime insurance and EE dishonesty insurance.

Personal

Buenas Empanadas has encountered many workers’ compensation claims and if

management does not improve and implement a loss control problem in order to reduce the

frequency in claims, claims will keep increasing in regards to frequency and cost. We

recommend Buenas Empanadas to implement a basic employee policy and procedure for each

job and location, randomly select employees and retrain them, run background checks, hire more

minority applicants and implement signs with signs and guidelines throughout the restaurants. A

personal risk that would cause a problem would be the death of Mr. and Ms. Weaver since there

is no business continuation plan. Developing a continuation plan is recommended just in case if

anything unfortunate happens. We recommend that Buenas Empanadas purchase a business

continuation policy and to purchase a cross purchase life insurance plan for both Mr. and Ms.

Weaver.

V. RISK ADMINISTRATION

Policy Statement

1. It shall be the policy of Buenas Empanadas. to avoid, reduce, or transfer the risk of loss

arising out of property damage, legal liability, and dishonesty in all cases in which the

exposure could result in loss that would bankrupt or seriously impair the operating

efficiency of the firm.

2. It shall be the policy of Buenas Empanadas. to provide safe working conditions for its

employees. Under no circumstances will the risk of serious injury or death of employees

be considered an acceptable risk.

3. It shall be the policy of Buenas Empanadas. to assume the risk of loss arising out of

property damage, legal liability, and dishonesty in all cases in which the exposure is so

small or dispersed that a loss would not significantly affect the operations or the financial

position of the firm.

4. The administration of the risk management program will be under the direction of the

Risk Manager, such responsibility to include placement of insurance coverages,

maintenance of property appraisals and inventory valuations, processing of claims and

maintenance of loss records, and supervision of loss prevention activities.

5. Insurance will be placed only in insurance companies rated A+ or A in Best's

Policyholders Ratings. Insurance placed in any other companies will require a written

report of the particulars, such report to be filed with the Board of Directors by the

Insurance Administrator.

6. Insurance will be purchased against all major loss exposures which might result in loss in

excess of $100,000 or 10 percent of the projected annual working capital through the

purchase of appropriate forms of property and liability insurance against the widest range

of perils and hazards available.

7. Insurance will not be purchased to cover loss exposures below the amount of $30,000

unless such insurance is required by law or by contract, or in those instances in which it is

desirable to obtain special services such as inspection or claim adjustment in connection

with the insurance.

Source: Risk Management, by Emmett J. Vaughan, Wiley, 1997.

Program Organization

The insurance policy purchased by Buenas Empanadas, will combine limits and

premiums for all five locations into a unified format. Buenas Empanadas will continue to

monitor and evaluate risk exposures and follow through with employees’ requests and needs.

Employees will be required to constantly obtain knowledge within the company through safety

training sessions and seminars. Buenas Empanadas’ personnel and employees will attend a

business meeting every two weeks to review existing and nonexisting loss exposures faced by

the firm.

VI. APPENDIX

Introduction/Company Overview

Operations

Catering

Food Safety

Employees

Employee Benefit plan

- Payroll

- Workplace safety

Locations

- All locations*

- Building Values

- Lease

Miscellaneous/ Additional information

Business Income Calculation

Workers Compensation Analysis

- Claims Losses

- Liability

- Property Losses

Financial Statement

- Balance Sheet

- Income Statement

- Insurance Coverage rates

Excel Spreadsheets