Module 8
Capstone: the Ceolwin case file
A new client, a fresh set of problems, and every tool from the course. Work through the six steps in order. By the end you have a complete risk file and a one-page memo you could hand to a board.
The case file
Ceolwin Carriers is a fictional freight forwarder that moves goods between three countries. A customer says a container of electronics was damaged in transit, customs has asked about the declared value of several shipments, a subcontractor says it was terminated unfairly, and a laptop with customer data has gone missing.
The four matters
- Cargo damage claim. A customer says a container of electronics was damaged in transit and wants compensation. Ceolwin’s contract has a liability cap, but the customer says the damage was caused by careless handling, which the cap may not cover.
- Customs valuation inquiry. The customs authority has asked how the declared value of several shipments was worked out.
- Subcontractor termination dispute. A subcontractor says it was ended without proper notice. Separately, Ceolwin has its own claim against a carrier that dropped a container, which it can settle or take to trial.
- Missing laptop. A laptop holding customer data has gone missing, and a notification duty may apply.
All names and figures are invented for the exercise. Treat the chances and amounts as the starting point of your own judgement, and change them where you disagree.
Step 1. Estimate the chance
For the cargo claim: choose a base rate from what you think a reasonable reference group would show, adjust for the four factors, and write your range and your reasons on paper.
Ceolwin’s defence of the cargo damage claim (the chance it must pay). Imagine a thousand disputes of exactly this kind, each pursued to a decision. In this invented reference group, the claimant wins in the share you choose below. That is the base rate. Then adjust, one factor at a time, for how Ceolwin’s case differs from a typical one.
Your adjusted chance of winning:
40%
Report it as a range, not a point: roughly 30% to 50%. A single figure like 40% sounds more exact than any lawyer’s judgement can be.
Start from the base rate (here 40%), change it by +0 points in total, and write one sentence of reasoning per factor. If you cannot say why you moved it, do not move it.
Step 2. Estimate the impact
Price the cargo claim if it succeeds, with a low, a likely and a high for each cost. Add any item you think is missing.
What it costs Ceolwin if the cargo claim succeeds
For each cost, give a low, a most likely and a high value. Use real ranges: if you could be off by a factor of three, say so.
Compensation to the customer
Check whether a liability cap in the contract limits this.
Expected (weighted towards the likely value): $93,333
Own legal and expert fees
Surveyors and damage experts add up.
Expected (weighted towards the likely value): $31,667
Higher insurance premium next year
A claim often raises the price of cover.
Expected (weighted towards the likely value): $9,500
Customer lost afterwards
Estimate a year of lost margin, not revenue.
Expected (weighted towards the likely value): $26,667
Total cost if this goes badly:
$161,167
A sensible planning range, covering about four outcomes in five: $128,795 to $193,538.
Adding every low gives $55,000 and every high $320,000, but all of them being at the extreme together is unlikely, which is why the planning range is narrower. It assumes the costs move independently. If one problem drags the others up, widen the range.
Step 3. Settle or fight
For Ceolwin’s own claim against the carrier: should it take the $45,000 on offer or go to trial? Find the break-even, and decide how confident you are that the real chance is above it.
Ceolwin Carriers is deciding whether to settle its recovery claim against the carrier that dropped a container or go to trial. Change any figure and the tree recalculates.
The three chances add up to 100%. Good: they add up to 100%.
Branch 1: Go to trial
- Wins in full (30%)$36,000
- Wins in part (40% of the award) (25%)$12,000
- Loses (45%)$0
- Less the cost of trial−$35,000
- Expected value of trial$13,000
Branch 2: Settle now
Certain receipt$45,000
On these figures, settling is better.
Trial is worth $13,000 on average and settling is worth $45,000, a gap of $32,000. The break-even is a 61% chance of a full win.
This treats money as equally welcome whether it is a sure thing or a gamble. A client who cannot afford to lose may rationally prefer the sure sum, and delay costs money too. Use the number to ask the right questions, not to end them.
What must be true? The chance of a full win against the value of trial
Where the gold line crosses the green dashed line is the break-even. To its right, trial is worth more than settling.
Step 4. Simulate the year
Run all four matters together. What is a bad year worth, and what reserve would you advise? Change one matter’s range and note what happens to the 90th percentile.
Each matter may or may not happen in the next twelve months. If it happens, its cost is somewhere between the low and the high, most often near the most likely value. The simulator plays out 10,000 possible years and shows how the total is spread.
| Matter | Chance (%) | Low | Most likely | High |
|---|---|---|---|---|
| Cargo damage claim | ||||
| Customs valuation inquiry | ||||
| Subcontractor termination dispute | ||||
| Missing laptop with customer data |
Average year
$118,988
The expected cost
Middle year (50th percentile)
$108,636
Half of years cost less
Bad year (90th percentile)
$240,691
One year in ten costs more
Very bad year (95th)
$282,910
One year in twenty costs more
In 16% of simulated years nothing at all happens, and in the worst tenth the cost is at least $240,691, which is 2.0 times the average. A budget set at the average would be too small in about 46% of years.
About 3.7% of simulated years cost more than $300,000.
Average cost by matter, and what the simulation assumes
- Cargo damage claim$42,000
- Customs valuation inquiry$25,000
- Subcontractor termination dispute$25,417
- Missing laptop with customer data$11,600
It assumes the matters are independent and that each cost follows a simple triangle between the low and the high. If one problem makes another more likely (an inquiry that triggers a lawsuit, for example), the real bad years are worse than shown. Different random numbers change the picture a little:
Step 5. Build the register
Rank the risks, test each fix, and decide which fixes to recommend. Remember: a fix with a negative net benefit may still be right if the client cannot bear the loss. Say which test you used.
A register lists every risk in one place, scored the same way, so the biggest can be seen first. Edit the figures, add your own risks, and watch the ranking, the heat map and the value of each fix change.
| Risk | Chance % | Impact if it happens | Fix | Fix cost | Chance % after fix | |
|---|---|---|---|---|---|---|
The ranked register
| # | Risk | Expected loss | Residual after fix | Fix cost | Net benefit of the fix |
|---|---|---|---|---|---|
| 1 | Cargo damage claim | $40,500 | $22,500 | $20,000 | −$2,000 costs more than it saves |
| 2 | Subcontractor termination dispute | $22,500 | $6,750 | $20,000 | −$4,250 costs more than it saves |
| 3 | Customs valuation inquiry | $18,000 | $7,200 | $15,000 | −$4,200 costs more than it saves |
| 4 | Missing laptop with customer data | $8,000 | $3,200 | $6,000 | −$1,200 costs more than it saves |
| Total | $89,000 | $39,650 | $61,000 | −$11,650 |
Expected loss is the chance times the impact. Net benefit is the reduction in expected loss from the fix, less what the fix costs. Both are averages, so a rare, severe risk can matter more than its expected loss suggests.
The heat map
Chance of happening, across. Impact if it does, up. Numbers match the ranking above.
Warning: a heat map hides magnitude. Two risks in the same cell can differ by a factor of three in cost, and a risk just under a band edge looks safer than one just over it. Always show the figures next to the map, as above.
Step 6. Write the memo
One page for Ceolwin’s board. Choose the decision that matters most (the reserve, the fixes, or the cargo claim), lead with your recommendation, and give your numbers from the steps above.
The fields start as prompts. Replace each with your own work from Steps 1 to 5. The memo on the right builds as you type, and the checklist below tells you whether it is ready.
Risk memo
Ceolwin Carriers
Recommendation. [Your recommendation, in one sentence.]
Decision. [State the one decision the board must make.]
| Chance | 0 to 0% |
| Impact | $0 to $0 (most likely $0) |
| Expected cost | $0 |
- [A specific reason from your analysis.]
- [A second reason, with a figure if you can.]
- [A third reason.]
What would change this advice. [What new fact would change your advice?]
Limits. [What your numbers assume and where they are weak.]
Self-audit: does your memo pass?
Tick each one honestly. Nobody grades this but you.
0 of 10 ticked. Rework it before anyone reads it.
Review your own file
When the memo is done, read it again as the board’s sceptical member would. Ask:
- Would I know what to do after reading only the first paragraph?
- Can I see how uncertain the numbers are, and why?
- Is there a figure here I could not defend if asked where it came from?
- Have I told the board what would change my mind?
Then check the file against what you did in Modules 1 to 7: loose words replaced by ranges, a base rate before the facts, impact priced with a range, a break-even stated, a bad year shown, a register with fixes and owners, and honest limits.
This course teaches a method with invented figures and fictional parties. It does not give legal advice, and its numbers are for practice. Never paste a real client’s confidential details into any public tool.