RSK4801 Examination Feb 2021

UNIVERSITY EXAMINATIONS
January/February 2021
RSK4801
OPERATIONAL RISK MANAGEMENT
100 marks
Duration: three hours
STUDENT NUMBER
IDENTITY NUMBER
INSTRUCTIONS
This online assessment consists of 20 pages. Please read the Invigilator App instructions below and
scan the QR code.
This paper comprises two sections. Section A consists of six questions based on a case study and section
B consists of four essay-type questions. Write your answers in the designated spaces below the questions
or answer the questions in a Word document and number your answers correctly.
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Page 2 of 20 RSK4801
The Invigilator App
Day of the assessment instructions:
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assessment.
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to the internet in order to log in.
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scanning of the QR code, you can also enter the QR access code as indicated at the
bottom of the QR code to start the online invigilation. Please ensure that you are
connected to the internet if you need to enter the QR access code at the bottom of the
QR code.
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mode if possible. No internet connection is needed during the assessment.
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uploading your script to your assessment platforms. Uploading your script is time
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o Good Luck!
RSK4801
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Read the case study below and then answer the questions that follow.
SECTION A
CASE STUDY
The sinking of the Oceanos
The South African coast is well-known for its strong gale-force winds and sea storms. Along with this
weather, there is a strong current running the entire length of the coastline, sometimes reaching a speed
of up to 6 knots (12 km) per hour. Known as the Agulhas current, the waves can reach a height of 30
metres during a storm. In the past, these conditions caused many ships to wreck along the coast.
The Oceanos was a 153-metre passenger ship. There was a seven-metre vertical distance between the
waterline and the hull of the ship, which represented the minimum depth of water that the ship could sail
in. The ship was built in 1952 as a cargo ship. In 1983 it was refurbished as a passenger liner that could
accommodate 516 passengers and 200 crew members. Notwithstanding the changes that were made
to the interior of the ship when it was refurbished, it was not a model passenger liner. There were six
decks that made provision for passenger cabins, restaurants, casinos, lounges and a swimming pool.
The lowest deck was for the crew and below this deck were the bowels of the ship, including the engine
room, the generators and the propeller shafts that turned the two giant propellers.
In 1991 the Oceanos was chartered by a South African company for an eight-month cruise season from
June to January the following year. The normal cruise season was from December to January during
the summer season when the weather was expected to be calmer than during the winter season from
June to November every year. The change in dates could possibly be ascribed to a strategic decision
to enhance the business of the company, especially in view of the fact that other cruise ships were
operating in Europe or the Mediterranean during the summer season.
The Oceanos arrived in South Africa in 1991. The ship’s captain, Yiannis Avranas, had 30 years’
experience at sea. There were 200 sailors on the ship as crew members. In an interview with the captain,
he jokingly remarked that if the ship should sink, he would be on the first lifeboat off the ship.
On the first day of a 12-day cruise, a passenger with experience and knowledge of maritime law
remarked that the way the ship rolled in calm waters was unusual for a passenger ship. He was also
unhappy with the status of the cabins and with the rusty lifeboat fittings. However, it was unlikely that
the vessel was unseaworthy because the Lloyd’s Register classification is applicable to all ships allowed
in South African waters. However, when the ship sailed out of one of the harbours on this first cruise,
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the passengers on the open deck felt a shudder and thought the ship had hit the bottom. When the
captain was asked if the ship had hit the bottom, he replied that it was nothing serious and that the ship
had hit an underwater buoy. Apparently, the captain was quite arrogant when more passengers asked
the same question. He dismissed the incident as not serious. It also seemed that neither the captain nor
the crew did anything to investigate this incident. A procedure should have been followed to investigate
the incident formally to determine precisely what had happened and whether the vessel had suffered
any damage. It seemed that this was not done and that the captain accepted that any damage would
be identified during a standard checking procedure of all systems that is carried out before a ship sets
sail. However, the Oceanos was already on its way.
The ship sailed to Cape Town and back to Durban on 31 July 1991 in “huge seas”, so much so that the
pilot could not board the ship by helicopter to steer the ship out of the harbour. The high seas and bad
weather continued until the ship docked in East London, where the passengers were allowed off the
ship for two days. The ship was chartered for a wedding for these two days. The ship would leave the
harbour for the wedding on Thursday and return on Saturday morning. However, on Friday the weather
got worse, and most of the guests got seasick and could not attend the whole wedding ceremony. The
ship returned to the harbour, and after a while the captain was pressurised by the wedding party to sail
out to sea again. Once again, the passengers got seasick, and the ship returned to the harbour. The
next morning the wedding passengers disembarked from the ship and the passengers set for Durban
re-embarked. However, not all passengers re-embarked since some had decided to travel by other
means due to the bad experience with the weather while sailing from Cape Town. The responsible crew
did not check the passenger list thoroughly and accepted that all passengers had re-embarked.
Consequently, there was no formal, complete passenger list, and it was assumed that all passengers
had re-embarked.
The Oceanos was scheduled to sail at 15:00 on 3 August but it was delayed due to bad weather. The
record of the height of the swells/waves on the sea on 3 August 1991 is indicated in table 1.
Table 1: Height of swells/waves

Time 04:00 05:00 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00
3 August
1991
Height of 2m 3m 2m 3m 3m 4m 5m 6m 9m 11 m 13 m 12 m 11 m 10 m 12 m
the swells
in metres
Source: Fictitious data
A safe height of swells for a passenger liner is two to three metres. Swells that are four to five metres
are risky and swells that are higher than 10 metres are dangerous for a passenger ship.
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Despite swells ranging from six to ten metres, the captain decided to depart at 17:00. He reasoned that
the ship had to set sail to Madagascar the next day and if the ship did not sail, it would inconvenience
the passengers and upset the schedule for the next day. When the ship sailed, it was very much against
the will and advice of some of the crew. Once again, the ship sailed in high seas. The crew started
preparing for restaurant service and the evening’s entertainment. However, due to the bad weather,
most passengers stayed in their cabins. The spray was lashing the open decks. The captain was on the
bridge and failed to ensure that the crew and the passengers participated in a safety drill in case of
emergency.
In the meantime, the chief engineer was in the engine room watching the crew remove a venting pipe
of the sewage system, which was blocked. This was an old system, and when the ship carried
passengers (instead of cargo for which it was originally designed), the system tended to get blocked.
While the crew was struggling to fix the pipes, an enormous wave hit the port side of the ship at around
22:00, knocking a steel chest of the hull and leaving a gap for water to rush in. A steel chest is a piping
system that draws water from the sea for cooling purposes. The engineers tried to plug the gap, but to
no avail and the water level was rising rapidly. The chief engineer arranged for the generators to be shut
down. He sealed the engine compartment and went to the bridge where he told the captain that the ship
was going to sink and that they should abandon ship. The captain asked why the ship would sink if the
compartment was sealed off. The chief engineer informed him that the venting pipe of the sewage
system had not been sealed off because they were still working on it. The captain understood the
problem that the water would flow through the sewage system throughout the ship, in which case it could
not be contained.
However, the captain did not give the command to abandon ship. Some crew members knew what was
happening and were running around in life jackets, which alarmed some of the passengers. Some of
the crew were struggling to release the lifeboats, and several officers were already seated in the boats.
Some passengers thought that a safety drill was underway but were informed by crew members that it
was not a drill and that they should get their life jackets and move to the upper decks.
At 22:45 the captain reluctantly ordered a Mayday call. However, the communications were not working
(because the generators had been shut down) and the radio officers transmitted the message in Morse
code. Various stations received the distress call. After the captain had determined the position of the
ship and sent it to the stations, he left the bridge. Passengers asked him what the situation was and he
told them that the engine room was flooded. He still did not give the order to abandon ship and failed to
inform the passengers that the ship was sinking.
Various actions were initiated by South African emergency services and the South African Defence
Force (SADF) to assist the Oceanos. However, the captain and his crew left the bridge and nobody was
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manning the communications between the Oceanos, other ships and the SADF. The captain was also
not one of the last of the crew to be rescued and abandoned the ship while some passengers were still
on board. According to a standard operating procedure, the captain and the crew of a ship must only
abandon the ship after the passengers have been rescued. Later, the communication function on the
bridge was performed by one of the passengers.
Eventually, the Oceanos sank off the South African Wild Coast on 4 August 1991 at 13:30 (17 hours
after it had set sail) in 10-metre swells. Although all passengers and crew were saved before the ship
sank, major operational problems were encountered, which negatively affected a streamlined approach
to abandoning the ship and ensuring everyone’s safety. In addition, due to the absence of an updated
passenger list, it was weeks before all the passengers were accounted for.
-------------------------------------------------------------
Source: Most of the information was retrieved from: Pike, A. 2019. Against all odds: the epic story of the
Oceanos rescue. Cape Town: Johnathan Ball Publishers.
Some fictitious information was used in the case study for training purposes.
Analyse the case study and answer the related questions.
Question 1 [15 marks]
Define “operational risk” and explain each operational risk factor in detail. Identify and discuss the
actions relating to people risk of the captain of the Oceanos during this incident that could serve as
input for responding to similar incidents in the future.
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Identify two types of risk exposure linked to system risk, process risk and external risk, respectively,
and propose a potential mitigating measure for each risk exposure.
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Discuss two strategic business decisions that led to operational risk in the case study.
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Risk-based decisions are dependent on accurate risk information. Key risk indicators are used in
operational risk management to generate risk information. With reference to the case study, the height
of the swells can be regarded as risk information that the captain could have used to decide whether
the ship should leave the harbour or not. Explain the concept of a leading or predictive indicator and
provide a graph using the information in table 1 to illustrate the height of the swells on 3 August 1991.
Clearly indicate the threshold and state whether you agree with the captain’s decision to set sail at
17:00.
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Graph:
Graph explanation:
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Even though all the passengers of the Oceanos were saved, what reputational damage may have
occurred due to the incident? What “hard” reputational risk indicators did the owners of the Oceanos
need to consider to track their reputational risk during and after the incident?
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The sinking of the Oceanos can be seen as an extreme event. Comment on the defensive approaches
that the owners and the crew of the Oceanos cruise liner could have adopted to prepare for such an
extreme event and what they did wrong.
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SECTION B
Business managers who are responsible for establishing an appropriate risk and control environment
are the first line of defence against risk exposure in an organisation. Risk management, which is
regarded as the second line of defence, involves oversight over business processes and risks and
the implementation of adequate risk policies and procedures. Discuss the third line of defence of an
organisation against risk exposure in detail.
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Business continuity is regarded as an important risk control measure. Discuss this concept in detail
in relation to policy and governance.
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During the process of operational risk management, risk and control self-assessments can be used
to identify operational risks, including inherent and residual risks. Discuss your understanding of
inherent and residual risks, also referring to expected and unexpected levels of risk.
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In 2015 an independent testing organisation discovered that German vehicle manufacturer

Volkswagen had cheated on diesel emissions tests. Volkswagen felt the blow of this scandal almost
immediately as its share price plummeted and the integrity of the company was called into question.
In the days and weeks following the announcement, its chief executive officer resigned from his post,
Switzerland and other countries halted sales of the company’s cars and lawsuits and criminal
investigations against the company were instituted in the United States, Canada, France and Italy.
More than 8,5 million cars were recalled in Europe alone, and Volkswagen experienced its first
quarterly loss in 15 years. Identify, define and discuss the risks relevant to this case, with specific
reference to failures in operational risk management that led to these risks.
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[TOTAL MARKS = 100]

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UNIVERSITY EXAMINATIONS

OPERATIONAL RISK MANAGEMENT

The Invigilator App

Day of the assessment instructions:

Table 1: Height of swells/waves

Source: Fictitious data

Analyse the case study and answer the related questions.

Question 1 [15 marks]

Question 4 [12 marks]

Question 5 [10 marks]

Question 6 [10 marks]

Question 8 [10 marks]

Question 9 [10 marks]

Question 10 [10 marks]

In 2015 an independent testing organisation discovered that German vehicle manufacturer

[TOTAL MARKS = 100]

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