Understand business credit and risk management. 1

Understand risk management and insurance. 2

Types of risk Ways to handle risks Business Insurance Uninsurable risks 3

4

What is risk? Risk is the possibility of insuring a loss. What is risk management? It is a systematic process of managing risk to achieve set objectives. Different types of risk:  Economic and non-economic  Pure risk and speculative  Controllable risk and uncontrollable  Insurable risk and uninsurable 5

Economic  Results in financial loss.  Three categories of economic loss:  Personal risk – Result in personal losses  Property risk – Loss of personal or business property including money, buildings and vehicles.  Liability risk – Harm or injury to other people or their property because of your actions.  Example: Fred’s Diner incurred a loss due to a fire. 6

Non-economic  May result in embarrassment or inconvenience without financial impact.  Example: Requesting for customers to move to another check-out lane. Pure  Threat of a loss without an opportunity for gain.  Example: Frost damages a strawberry patch. 7

Speculative Risk  Offers the chance of gain or loss.  Example: Mary opened a shoe store that operated for only six months. Controllable Risk  Occurs when conditions can be controlled to lessen the chance of harm.  Example: Sears installed centralized customer service stations in order to increase convenience. 8

Uncontrollable Risk  Cannot be controlled or reduced by your actions.  Example: Riding along a highway with other speeding automobiles. Insurable Risk  Meets criteria of an insurance company for coverage.  Example: An artist purchased insurance to cover his collection. 9

Unpredictable amount of loss  Example: A competitor of Staples, an office supply store, moved right across the street. 10

11

 Avoid  Transfer  Insure  Assume 12

Avoid the risk  Declining to engage in particular activities.  Example: A book company decline an order to produce 6000 books in one day. Transfer the risk  Allowing someone else to assume the risk.  Example: A book company has a contract for a trucking company to transport its books. 13

Insure the risk  Purchasing insurance to cover risk.  Example: General Electric sells insurance to customers to cover their appliances.  Assume risk  Finishing an activity and accepting full responsibility  Example: Mary runs a coffee shop and offers a variety of services. 14

15

Personnel  Health insurance provides protection against the high costs of individual health care.  Disability insurance provides payments to employees who are unable to work for an extended period due to serious illness or injury.  Life insurance pays the amount of the insurance policy upon the death of the insured. 16

Property  Insurance is purchased to protect business from financial loss due unsuspectingly damages to their buildings, equipment, and building contents, including inventory. Business Operations  Coverage as a result of accidents, injuries, and property damage. 17

 Economic Conditions  Consumer Demand  Action of Competitors  Technology Changes  Local Factors  Business Operations 18