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Chapter 14 Risk Management


									Risk Management
   Economic and non-economic risks
   Pure and speculative risks
   Controllable and uncontrollable risks
   Insurable and uninsurable risks
   Economic risk
    ◦ Can result in financial loss
   Personal risk
    ◦ Can result in personal losses such as health and
      personal well-being
   Property risk
    ◦ Can lead to loss of personal or business property
      including money, vehicles, and buildings
   Liability risk
    ◦ Relates to harm or injury to other people or their
      property as a result of your actions
   Pure risk is a risk that presents the chance of
    loss but no opportunity for gain is a pure
    ◦ Weather
   Speculative risk offers the chance either to
    gain or to lose.
    ◦ Investing in a new business, stock market
   A risk that you can reduce or eliminate by
    your actions is controllable
    ◦ Protecting yourself from theft by adding security

   Uncontrollable risks cannot be reduced by
    your actions.
    ◦ Hailstorm
   Risk is the possibility of incurring a loss.
   Avoid it!

   Transfer it.

   Insure the risk

                      Yikes! Gotta go!
   Assume the risk
Method     Activity
Avoid      Choose not to participate in the
           risky activity.
Transfer   Find another business to complete
           the activity.
Insure     Purchases insurance to pay for any
Assume     Complete the activity with full
   How do individuals and businesses pay for
    large economic losses?
    ◦ Insurance – planned protection against economic
       Provided by insurers or insurance companies
       Provided on behalf of the insured
       Risks covered are outlined in an insurance policy
       The insured is also known as the policyholder
       The payment for the policy is known as the premium
      Asking for money when an insured loss occurs is called
       filing a claim.
Personnel              Operations

   Health
    ◦ Protects against high costs of individual health care
   Disability
    ◦ Provides payments to employees who are not able
      to work for an extended period of time due to
      illness or injury
   Life
    ◦ Beneficiaries
      Family
      Partners
      Key executives
   Commercial property
    ◦ Buildings
    ◦ Equipment
    ◦ Building contents, including inventory

    Protection covers property losses resulting from fire,
    storms, accidents, theft, and vandalism.

    Special policies can also provide coverage for flood
    damage and earthquakes.
   Autos
   Trucks
   Other business vehicles
   Insurance to provide compensation for
    ongoing business expenses for temporary
    shutdown due to flood, fire, or other major
   Liability insurance provides coverage for
    claims by others based on damages suffered
    because of business operations, employees,
    or products.
   The costs of some risks are so high that a
    business cannot afford the cost of insurance
 Economic Conditions
  ◦ Recession, Depression
 Consumer Demand
  ◦ Can’t always count on consumer
 Competitors’ Actions
  ◦ Better advertising, better product,
    better service
   Technology Changes
    ◦ If you can’t adapt you can be left behind!
   Local Factors
    ◦ Construction in front of the business, new highway
      bypasses the town, laws, taxes . . .
   Business Operations
    ◦ Bad business practices can cause higher costs, low
      morale, poor customer image.
   Awareness
   Continuous study of risk areas
    ◦ Stay aware of changes in the economy, competitors’
      actions, and technology
   Collect and review customer information
    ◦ Complaints and requests
   Carry out business in many countries (spread
    the love)
   Offer a range of products (eggs in more than
    one basket)
   Involve local business partners
   Employ local management
   Exclusive rights to possess and use property
    and its profits
    ◦ Nobody else can interfere with the use of them.
   Intellectual property
    ◦ Technical knowledge or creative work
      Software, clothing designs, music, books, and movies
   Patent
    ◦ Exclusive right of an inventor to make, sell, and use
      a product or process. Designed to encourage
      innovation and progress.
   Trademark
    ◦ A distinctive name, symbol, word, picture, or
      combination of these that a company uses to
      identify products or services.
   Copyright
    ◦ Protects the original works of authors, composers,
      playwrights, artists, and publishers.
   Counterfeiting
    ◦ Refers to illegal uses of intellectual property,
      patents, trademarks, and copyrights.
   The End


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