Section 34.1 Risk Management Marketing Essentials n Chapter 34 Risk Management Section 34.1 Risk Management

Risk Management SECTION 34.1 The nature and scope of risk management What You'll Learn The nature and scope of risk management The various types of business risks

Risk Management SECTION 34.1 Why It's Important Businesses must manage risks in ways that support public interest, human safety, the environment, and state and federal laws. Risk management is necessary for effective financial, marketing, production, and human resource management decisions. Risk management reduces the adverse effects of risk on business resources, cash flow, and profits.

Risk Management SECTION 34.1 risk risk management business risk Key Terms risk risk management business risk economic risks natural risks human risks

Risk Management SECTION 34.1 Risk Management Risk is the possibility of financial loss. Risk management is the systematic process of managing an organization's risk exposure to achieve objectives in a manner consistent with public interest, human safety, environmental factors, and the law.

Risk Management SECTION 34.1 Kinds of Risks Business risk is the possibility of business loss or failure. There are three kinds of business risks: economic natural human

Risk Management SECTION 34.1 Economic Risks Economic risks occur from changes in overall business conditions. These changes can include: the amount or type of competition changing consumer lifestyles population changes limited usefulness or style of some products product obsolescence inflation recession government regulation

Risk Management SECTION 34.1 Natural Risks Natural risks are risks resulting from natural causes such as: floods tornadoes hurricanes fires lightning droughts earthquakes unexpected changes in weather conditions Unexpected losses from some natural risks (e.g., fire) can be insured against; other natural risks (unpredictable weather) cannot be insured against.

Risk Management SECTION 34.1 The Top Catastrophes of 1999 Businesses face natural risks from floods, hurricanes, fires, and other natural causes. How many times greater were the damages caused by Hurricane Floyd compared to the Ford Motor Company plant explosion and fire?

Risk Management SECTION 34.1 Human Risks Human risks are caused by human mistakes, as well as the unpredictability of customers, employees, or the work environment. Human risks include: customer dishonesty—theft, fraudulent payment, or nonpayment employee error, negligence, incompetence, and theft customer or employee accidents

Reviewing Key Terms and Concepts ASSESSMENT 34.1 Reviewing Key Terms and Concepts 1. What are four ways to enter into a business? 2. What are the three basic forms of business ownership? 3. What legal steps must you take to establish a sole proprietorship or partnership? 4. What legal steps must you take to establish a corporation? 5. What is a Subchapter S corporation?

ASSESSMENT Thinking Critically 34.1 Which of the four ways to enter a business would you use to start your own business? Explain your decision.

RISK Graphic Organizer 34.1 Types of Risk Economic Natural Human Competition Consumer Lifestyle Changes Population Changes Obsolescence Limited Product Usefulness Government Regulation Inflation Recession Floods Tornadoes Hurricanes Fires Lightning Snowstorms Earthquakes Droughts Mistakes Theft Fraud Computer Crime Customer/Employee Unpredictability Work Environment Unpredictability

Marketing Essentials End of Section 34.1