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Risk Example
Rating Methodology
Druml Group has developed a standardized means to measure failure risk, identifying all relevant risk factors having an impact on the business and financial side of a construction company. Most factors are a detailed system, plan, procedure, method, policy, or safeguard that must exist within a construction company to achieve maximum control over risk. Using a mathematical model, the standardized risk assessment system provides a means of accurately assessing and then calculating the overall risk exposure.
Risk Factors
Identification
Druml Group has established concise definitions of over 55 risk factors with their varying levels of importance. The risk factors identified generally fall into categories of business structure, internal systems, accounting procedures, cost control, efficiency, preventative measures, negative exposure and contingency plans.
Importance
The level of importance of risk factors varies greatly and so too their contribution to overall risk exposure. Following a detailed analysis by Druml Group, exact levels of importance were ascertained and then assigned to each risk factor identified in the study. Certain risk factors can themselves potentially cause a business interruption or failure, while other risk factors must work in combination with factors of equal or greater importance to cause such consequences.
Measurement Guide
Risk Levels
To accurately assess the risk level of a risk factor in a consistent and uniform manner, four levels of risk have been established for each factor. The typical characteristics of each factor at the different levels are distinguished from one another and well defined. Thus, differentiating between the levels of risk for each factor in such a defined way creates a sound guide for any risk factor assessment performed in a real case.
Characteristics
The varying level of importance between risk factors is more readily apparent when examining them in detail. For example, poor software system backup procedures could potentially wreak havoc if computer hardware was to fail. The task of re-creating lost information would likely cause a significant amount of unexpected work but is not very likely to cause a business failure. On the other hand, failure to have a sound succession plan in place in the event that a sole business owner becomes incapacitated could lead to the termination of banking or bonding relationships and thus cause a business to fail.
Risk Assessment
Scorecard
An overall summary of all of the risk factors and the construction company's associated risk levels is produced and provided for easy reference. The scorecard is ideal for quick comparison after subsequent assessments.
"digger" Rating™
Upon processing the risk factors and levels through the mathematical formula, a standardized score is produced. This score is known as the Druml Group Risk Rating™ or ''digger'' rating™. Much like a FICO score, the "digger" rating™ is a composite score based on the positive or negative impact of important factors. Companies with a high DGRR® are proven to carry less failure risk than companies with lower scores.
Report Summary
Factors of Concern & Recommendations
Each Druml Group Construction Risk Assessment Report provides detailed recommendations for reducing exposure to risk. Recommendations for risk reduction are provided for each risk factor of high importance that is assessed at a high level of risk. Risk factors of lesser importance also receive recommendations when determined to play a combined role in failure risk. In addition, each report identifies the risk factors assessed, describes their importance, includes the complete measurement guide used in our assessment and shares our scoring.
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