8.01 Summarize the concept of risk management

Risk  Possibility of a financial loss or failure  Individuals or companies willing to take risk because of opportunity for success or financial gain

3 Most common risks for a business 1. Economic 2. Natural 3. Human

1. Economic risk  Risk associated with the possibility of loss due to a change in the economy  A business might experience monetary loss due to changes in overall business conditions

Economic risk involves…  Competition  Changing consumer lifestyles  Inflation  Population changes  Limited usefulness or popularity of some products  Obsolescence  Government regulation  Recession

Examples of economic risk:  New Lacrosse Team moves to Charlotte in 2011 to increase opportunity to make profit

2. Natural risk  Risk associated with possibility of loss due to natural causes

Natural risk involves…  Drought  Earthquakes  Hurricanes  Tornadoes  Lightning  Fires  Other unexpected changes in normal weather conditions

Example of natural risk  In August 2011, a massive gust of wind brought down a stage at the Indiana State Fair on Saturday night, killing at least four and injuring 24

3. Human risk  Risk associated with the possibility of loss due to human factors.  Risks affiliated with employees or endorsers might include dishonesty, incompetence, accidents, illness or negligence

Human risk  Customer unpredictability  Employee unpredictability  Human mistakes including dishonesty, fraud, accidents  Dishonesty  Incompetence  Accidents  Illness  Negligence

Examples of human risk:  Lowes Motor Speedway removed first 2 rows of seats on front stretch to protect fans from flying debris

Write the definition for the three types of Risk that most commonly affect businesses.  In a bullet point under each definition create and example describing the types of risks (Do not copy from others). Student Response: RISK (STEP 1) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

Risk management  The management, control, and prevention of exposure to internal or external risks

Risk Management Plan  Outlines procedures for handling all forms of business risk

Making a Risk Management Plan 1. Identify the potential business risks 2. Measure the prioritize business risks 3. Determine how to effectively handle each risk 4. Implement risk management plan

Risk Prevention Involves dealing with risks before they occur Thinking Ahead

Risk Prevention 5 STEPS 1. Screening potential employees 2. Training and orientation 3. Providing safety 4. Preventing external theft 5. Preventing internal theft

Risk prevention involves: 1. Screening potential employees  Interviews and aptitude tests are the two most common ways businesses screen employees

Risk prevention involves: 2. Training and orienting new employees to company polices and procedures

Risk prevention involves: 3. Providing safe conditions and safety instructions for employees  Proper safety instruction can reduce the possibility of on-the-job accidents

Risk prevention involves: 4. Preventing external theft Shoplifting is stealing merchandise form a business Robbery is stealing merchandise or money through the use of force or threat

Risk prevention involves: 5. Preventing internal theft Dishonest employees could steal merchandise (larceny) or money (embezzlement) from a company

As a group you will be given a business scenario  In at least 3 bullet points determine possible risks for the business  Describe ways to involve at least 4 out of the 5 risk prevention steps Student Response: RISK (STEP 2) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

Risk transfer Involves passing risk 1. Purchasing insurance 2. Using warranties 3. Using warranties

1.Purchasing insurance against a potential loss. Examples:  Property  Liability  Business interruption  Income insurance.

2.Using warranties to transfer risk to manufacturer Warranty a written guarantee that a product or service will meet certain quality standards

 If product or service does not meet the expectations of consumer, or if product fails, manufacturer is held responsible  Most warranties have specific time or use limits 2.Using warranties to transfer risk to manufacturer

3.Business ownership  Type of business determines how much risk is incurred by each owner

Types of Businesses  sole proprietorship  Partnership  corporation 3.Business ownership individual owners shareholders

Risk Retention  Involves assuming or acknowledging a business risk and outcome  Some risks are inevitable or uncontrollable  Some risks cannot be transferred, avoided, insured or prevented

Risk Avoidance  May be achieved by anticipating business risk and preparing for risk in advance  Avoid opportunities or investments that have potentially high risk  Pursue an option or strategy that involves less risk

As a group you will be given a business scenario  Describe 2 situations in which you plan to transfer the risk of your business Student Response: RISK (STEP 3) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

Write the definition for the three types of Risk that most commonly affect businesses.  In a bullet point under each definition create and example describing the types of risks (Do not copy from others). Student Response: RISK (STEP 1) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

As a group you will be given a business scenario  In at least 3 bullet points determine possible risks for the business  Describe ways to involve at least 4 out of the 5 risk prevention steps Student Response: RISK (STEP 2) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

As a group you will be given a business scenario  Describe 2 situations in which you plan to transfer the risk of your business Student Response: RISK (STEP 3) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.