8.01 Summarize the concept of 8.01 Summarize the concept of risk managementrisk management

Risk

• Possibility of a _____ 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. ________

3. Human

1. Economic risk

• Risk associated with the possibility of loss due to a change in the ________

• 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 _____________ Recession

Examples of economic risk:

• _________________

• _________________

2. Natural risk

• Risk associated with possibility of loss due to _______ _______

Natural risk involves…

• Drought

• ________

• Hurricanes

• Tornadoes

• Lightning

• Fires

• Other unexpected changes in normal weather conditions

Example of natural risk

• Lubbock Texas, 2002, Brittany Spears concert was cancelled due to power outage from a storm

3. Human risk

• Risk associated with the possibility of loss due to _______factors.

Human risk

• Risks affiliated with ______ or endorsers might include dishonesty, incompetence, accidents, illness or negligence

Examples of human risk:• _________• unpredictability • Employee

unpredictability• Human mistakes

including dishonesty, fraud, accidents

• Lowes Motor Speedway removed first 2 rows of seats on front stretch to protect fans from flying debris

Risk management

• The management, control, and ________ of exposure to internal or external risks

Risk management plan

• Outlines procedures for handling all forms of business risk

Risk management plan• Important considerations to be

included in a plan:1. Identify the potential business risks

2. Measure the prioritize business risks

3. Determine how to effectively handle each risk

4. ______ risk management plan

Risk prevention

• Involves dealing with risks _____ they occur

Risk prevention involves:

1. Screening potential employees

• _____ 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 for a business

• ______ 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 (_____) from a company

Risk transfer

• Involves ______ risk

Risk transfer accomplished by:

1. Purchasing insurance against a potential loss.

• Examples include___________________________

Risk transfer accomplished by:

2. Using warranties to transfer risk to manufacturer

• A warranty is a _______guarantee that a product or service will meet certain quality standards

Risk transfer accomplished by:

2. Warranties (con’t)

• 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

Risk transfer accomplished by:

3. Business ownership

• Type of business determines how much risk is incurred by each owner

• In a sole proprietorship or partnership, all risks assumed by________

Risk transfer accomplished by:

3. Business ownership (con’t)

• In contrast, a corporation distributes risk among all of its shareholders.

Risk retention

• Involves assuming or acknowledging a business risk and outcome

• Some risks are inevitable or uncontrollable

• Some risks _____ be transferred, avoided, insured or prevented

Risk avoidance May be achieved by anticipating

business risk and preparing for risk in _______

Avoid opportunities or investments that have potentially high risk

Pursue an option or strategy that involves less risk