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

2. 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

3. 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.

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

5. 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.

6. 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

7. 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

8. 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.

9. 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?

10. 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

11. 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?

12. 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.

13. 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

14. Marketing Essentials
End of Section 34.1