Instructions: There is no vocabulary for this chapter. Read through the PowerPoint and take notes on the material. Be sure to answer the questions throughout the PowerPoint in your notes. The substitute will be collecting your notes at the end of class. 1

Part One Risk Management 2

NATURE OF RISK RISK – Possibility of financial loss RISK MANAGEMENT – The process of managing an organization’s risk exposure consistent with public interest, human safety, environmental factors, and the law.

4. Implement the risk management program 3. Select a risk management method 2. Evaluate risks 1. Identify potential risks The Risk Management Process

Sad Sally’s Service Station You work as an assistant manager for a 24- hour a day self-service gas station and convenience store. Because of rising gasoline prices, you are experiencing an increasing amount of “drive-offs.” More individuals are filling their tanks and driving away without paying. Assignment: Design a plan to reduce external theft at your gas station.

Types of Business Risks Business Risk – possibility of business loss or failure. Economic Risk Natural Risk Human Risk

Economic Risk Financial loss occurring from changes in overall business conditions

Economic Risk Amount or type of competition – Businesses failing to change their products to keep up with competitors. Changes in consumer life styles or population – Two income households, Aging Baby Boomers, Delaying marriage.

Economic Risks Limited usefulness or style of the product – Markdowns and Sales Product obsolescence – Products become outdated or obsolete Government regulation – Product recalls, environmental laws, etc. Inflation & Recession – high unemployment will effect sales

Natural Risks Loss resulting from natural causes such as floods, tornadoes, hurricanes, fires, lighting droughts, earthquakes, and unexpected changes in weather conditions.

Natural Risks Ski resorts need snow fall Hot summers increase sales in air conditioners, fans, boats, swimming pools, etc. Asian Tsunami Hurricane Katrina Fire

Human Risk Business loss caused by human mistakes, as well as the unpredictability of customers, employees or the work environment.

Human Risk Employees – errors, negligence, incompetence, internal theft Customer dishonest – thefts, fraudulent payment or nonpayment Safety – Accidents High rise of computer crimes

Identify the Type of Risk The National Hockey League goes on strike causing the cancellation of the season Answer: ___________________

Identify the Type of Risk An earthquake in California leads to increased losses for an insurance company Answer: _______________

Identify the Type of Risk Basketball shoes that were endorsed by players are no longer trendy among teenagers. Answer: __________________

Identify the Type of Risk Clothing companies can’t make production figures because of a cotton shortage due to the lack of rain. Answer: _______________

Identify the Type of Risk A local restaurant improperly cook hamburger sending customers to the hospital Answer: ___________________

Identify the Type of Risk An inventory shortage due to employee theft in the warehouse. Answer: ___________________

Identify the Type of Risk A high unemployment rate causes a decrease in retail sales. Answer: ________________

Handling Business Risk Risk Prevention and Control Risk Transfer Risk Retention Risk Avoidance

Risk Prevention & Control Screening & training employees Providing Safe Conditions and Safety Instruction Preventing External & Internal Theft

Risk Transfer Purchasing Insurance – Contract between the business and an insurance company to cover certain business risk. Product & Service Warranties – promises made by the seller or manufacturer with respect to the performance and quality of the product.

Risk Retention Businesses retain or assume responsibility for the loss Unaware of the risk Underestimating the risk Hope for profits

Risk Avoidance Avoiding risk by anticipating them in advance.

Part Two Legal Terms of business to know 26

27 Intellectual Property Patent – sole right for 20 years to make, use, and sell an invention or process Copyright – sole right to reproduce, publish, and sell literary or artistic work for the life of the author plus 70 years (also includes software) Trademark – distinguishing name, symbol, or mark placed on a good or service that is legally reserved for the sole use of the owner

28 Intellectual Property PATENTS  Motors  Mousetraps  Games  Computers COPYRIGHTS  Software  Novels  Poetry  Textbooks TRADEMARKS  Names  Symbols

29 State and Local Regulations Licensing limits and controls those who plan to enter certain types of businesses (can be refused) Building codes control the physical features of structures zoning specifies which land areas may be used for homes and for different types of businesses