8.01 Summarize the concept of risk management

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					8.01 Summarize the concept of
       risk management

• Possibility of a _____ loss or
• Individuals or companies willing
  to take risk because of opportunity
  for success or financial gain
  3 Most common risks for a
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    Limited
 Changing        usefulness or
  consumer        popularity of
  lifestyles      some products
 Inflation      Obsolescence
 Population     _____________
  changes        Recession
 Examples of economic risk:
• _________________
• _________________
         2. Natural risk

• Risk associated with possibility of
  loss due to _______ _______
      Natural risk involves…

•   Drought      • Fires
•   ________     • Other
•   Hurricanes     unexpected
•   Tornadoes      changes in
                   normal weather
•   Lightning      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
           Human risk

• Risks affiliated with ______ or
  endorsers might include
  dishonesty, incompetence,
  accidents, illness or negligence
    Examples of human risk:
• _________        • Lowes Motor
• unpredictability   Speedway
• Employee           removed first 2
  unpredictability   rows of seats on
• Human              front stretch to
  mistakes           protect fans
  including          from flying
  dishonesty,        debris
  fraud, accidents
       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
          Risk transfer

• Involves ______ risk
 Risk transfer accomplished by:

1. Purchasing insurance against a
   potential loss.
  • Examples
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
• In a sole proprietorship or
   partnership, all risks assumed
 Risk transfer accomplished by:

3. Business ownership (con’t)
• In contrast, a corporation
   distributes risk among all of its
          Risk retention
• Involves assuming or
  acknowledging a business risk and
• Some risks are inevitable or
• 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