Page 139 - RISK Management IC 86
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a more advantageous position despite having waived its
rights of recovery against contractors for losses due to
their negligence.
Q6.a) Identify the problems involved in risk financing
through the use of contingency fund.
(b) Suggest methods to protect the contingency fund.
Ans.a) Sometimes, some organizations desire to retain risks
internally to cope up with large and unpredictable losses
and charge them against operating costs.
The idea is to spread out the losses of a longer period.
Such a fund can be financed by either the transfer of a
capital sum to the fund or by paying in periodic
contributions like insurance premiums. The
disadvantage is that these periodic contributions are
not tax deductible.
As the contingency funds need to be kept readily available,
transfer of a capital to this fund would mean foregoing
some other ventures or some expansion plans.
Therefore, the amount that an organization will be willing
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