RISK AND RISK MANAGEMENT

LESSON OBJECTIVES Display understanding of typical risks businesses face Evaluate approaches to risk management and mitigation

KEY VOCABULARY TERMS Asset Business interruption insurance Diversification Employee Confidentiality Agreement Fire Insurance General Liability Insurance Insurance Malpractice Mitigate Premiums Product Liability Insurance Product Testing Pure Risk Quality Assurance

KEY VOCABULARY TERMS Risk Risk Mitigation Speculative Risk Strategic Partnership Surety Bond Theft insurance Vehicle insurance Worker’s compensation Worker’s compensation insurance

WHAT’S THE RISK? Every business faces a certain amount of risk. Some risks can be controlled and prevented, while other risks are unpredictable and uncontrollable What types of risks would a fast food restaurant face? Unpredictable risks Preventable risks

WHAT’S THE RISK All businesses are financial entities that have assets—property, equipment, money in the bank, intellectual property, and people that are things the business values. Unfortunately, these valuable things constantly face risks from the real world. These risks take the form of accidents, disasters, market downturns, and other unforeseen events. These dangers must be protected against. Companies often purchase insurance or pursue specific strategies to reduce their level of risk.

UNDERSTANDING RISKY BUSINESS Download- Reading: Risky Business Download- Worksheet: SQ3R Fill out while reading

MITIGATING RISKY BUSINESS PART 1 Download- Team Activity: Risky Business Imagine that you are risk mitigation consultants hired by ECPak to suggest a package of strategies and insurance policies to reduce the company’s overall risk

MITIGATING RISKY BUSINESS PART 1 Analyze the cost per year and potential benefit of the type of risk mitigation that is being offered There is a budget involved, so start with the most necessary types of insurance and then see how much money they have left before purchasing “nice-to-have” insurance In most states certain types of insurance such as workers’ compensation are mandatory, find the required insurance under NJ law for this assignment

MITIGATING RISKY BUSINESS PART 1 How many groups had trouble staying within the financial constraints of the ECPak Company? Out of all of the choices listed on the Mitigation Menu, which one seems to be the most important? Why?

RISKY BUSINESS PART 2 My basket contains cards representing unfortunate events that could happen to ECPak. Use the card to calculate the overall cost of and savings from their risk mitigation plan.

RISKY BUSINESS PART 2 How did groups choose which options to pick? What was their reasoning? What are the tradeoffs in the area of risk mitigation?

RISKY BUSINESS PART 2 Tradeoffs are made by businesses every day—and because losses are unpredictable, they have to be very careful when selecting types of insurance, using the knowledge that they have available A business located in a flood plain, for example, would take their location into account when determining whether flood insurance is necessary

REVIEW List and define the risks associated with running a business List and describe the types of insurance available to the business How can business mitigate risk outside of insurance? What are the most important types of insurance a business can have?

CLOSURE The most important thing a business owner should remember when thinking about ways to minimize the risks involved with business ownership In your opinion, what is the one thing a business owner should always remember when thinking about ways to minimize risk?

ENRICHMENT Research different risk mitigation companies and present information about the company to the class.

ENRICHMENT Research pure risk and speculative risk and write a brief essay describing why speculative risk is not insurable.

ENRICHMENT Create a poster describing different types of risk and how to avoid it.