Factors Effecting Profit
Financial Risk
Risking It All
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Risk
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Possibility of financial gain or loss or personal injury
Businesses that do not profit must close
Personal injury can occur if businesses do not take the
appropriate safety precautions
Businesses must consider:
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Natural risk
Human risk
Economic risk
Natural Risk
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Weather conditions that cannot be avoided
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Tornadoes
Blizzards
Hurricanes
Floods
Droughts
Ice Storms
Less catastrophic weather conditions can cause problems
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Heavy thunderstorms
Dangerous lightening
*Can you cite some recent examples?
Human Risk
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Customer dishonesty
Employee theft/dishonesty
Employee incompetence
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Poor attitudes
Poorly trained
Shoplifting
Credit card fraud
Bad checks
How do businesses attempt to manage these
types of risks?
Economic Risk
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Economic conditions
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Consumer lifestyles
Individual purchases
Discretionary income
Demand
Recalled products
Research to find a recent recall. What effect did
the recall have on the business and the consumer?
Gain or Loss risk
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Gain example
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Loss example
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A sports team is very successful and attracts many fans
Investors make a great deal of profit
A flood closes a golf resort
Investors cannot possibly gain from the event
Speculative risk could result in either a gain or a loss as in
the sports team example
Pure risk occurs when there is no chance of a gain
Controllable Risk
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Prevent or reduce the occurrence of the risk
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Uncontrollable Risk
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Business has adequate safety measures in place
Employees are well-trained in safety procedures
Natural disasters
Think of a place you visit often and name some
safety procedures that business has in place. Can
you think of any way to improve their safety?
Insurable Risk
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Pure risk for which the chances of loss are predictable
and the amount of the loss can be estimated
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Fire
Earthquake
Flood
Theft
Injury
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Workers’ Compensation
Uninsurable risk occurs when there is a chance that a
loss could occur, but the dollar amount cannot be
estimated
Managing Risk
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Risk management
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Preventing, reducing, or lessening the negative impacts of risk
by using one of these strategies:
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Risk Avoidance
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Comply with safety laws
Background checks on employees
Safety training
Video surveillance
Security guards
Controlled access
Warning signs
Managing Risk, con’t.
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Risk Insurance
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Predictable losses
Property
Liability
Theft
The premiums from many businesses are pooled to and
used to pay the losses that a few businesses experience.
Managing Risk, con’t.
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Risk Retention
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Uninsurable risks
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Breakdown of equipment
Low demand
Bad economy
Products that won’t sell
Owners realize that there are uncontrollable circumstances
that can negatively impact the business
Businesses must set aside funds for use in these circumstances