Lesson Objectives
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 Define Risk and Risk Management
 List and Describe 3 Types of Risks
 Know and Understand 4 Basic Ways to Handle and
Control these Risks
 List 3 types of Ways to Transfer Risks
 Know the Difference Between Risk Avoidance and
Risk Acceptance
What is Risk
Management?
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Risk - The possibility of financial loss
Management - The business function used to
plan, organize, and control all available
resources to reach company goals
Risk Management - 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.
Kinds of Risks
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3 Types
Economic
Natural
Human
Economic Risks
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These risks occur from changes in
overall business conditions.
This can include:
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amount or type of competitor(s)
changing consumer lifestyle
population changes
government regulations
inflation
Recession
Unemployment
Natural Risks
Natural risks are result from natural disasters or
disruptions
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 floods
 tornadoes
 hurricanes
 fires
 droughts
 lightning
 earthquakes
 even sudden abnormal weather conditions
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Human Risks
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These are caused by human mistakes and errors, as
well as the unpredictability of customers, employees, or
the work environment
This could include:
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Theft
Injury on the job
Employee error
Negligence
Incompetence
Etc.
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Ways to Handle Business
Risks
There are 4 principle ways to handle risks
Risk Prevention and Control
(Loss Prevention)
Risk Transfer
Risk Acceptance
Risk Avoidance
Risk Prevention and
Control
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Screening and Training Employees
Providing Safe Conditions
Providing Safety Instruction
Preventing External Theft
Deterring Employee Theft
 This is often called “Loss Prevention” in the business world
Risk Transfer
3 Common
Risk Transfers
 insurance
 product/service
warranties
 transference through
business ownership
Insurance
 that covers a business
 Insurance policy - contract
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with a specific type of insurance reducing risks
Business liability - insurance protects a business
against damages for which it may be held legally
liable.
Personal liability - covers damages by customer
and/or employees
Product liability - protects from personal injury
caused by product manufactured or sold by the
business
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Product/Service
Warranties
Warranties are simply
promises made by
the seller or
manufacturer with
respect to the
performance and
quality of a product
and protection
against loss
Transference Through
Ownership
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 The total amount of risk the business must handle
depends in part on the type of business ownership
 For example, a entrepreneur who owns a soleproprietorship assumes all the risk as where a
stockholder in a corporation assumes only his
percentage of the risk.
Risk Acceptance
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 When the business assumes the loss responsibility
into the upkeep of the company
 Most companies pull out a certain percentage of their
revenue for damages, loss to theft, and unsold items.
Risk Avoidance

Risks can be avoided by advance anticipation
Following market research can assist a business
in making the decision on whether or not to
invest in a product.
To determine whether the product is a low risk
you must weigh the potential benefits against
the potential risks
Risk Management Plan
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 Develop an overall Risk Management Plan for the
business
 Develop a specific Risk Management Plan for
specific events that occur within the business
 Revisit the plan regularly to update
What We Have Learned
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 The three types of risks: economic, natural, human
 The terms important to Risk Management:
 risk - the possibility of financial loss
 risk management - the process of how a business controls the risk of
financial loss while staying consistent with the public’s interest, safety,
environmental factors, and the law
 There are more ways than one to handle risks effectively.
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Loss prevention
risk transfer - insurance, warranties, and transferring ownership
risk acceptance - assume responsibility of loss
risk avoidance - anticipating product failure and not investing in
product/service