Marketing Essentials
n Chapter 34 Risk Management
Section 34.2 Handling
Business Risks
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SECTION 34.2
Handling Business Risks
What You'll Learn
 The ways businesses handle risks
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SECTION 34.2
Handling Business Risks
Why It's Important
Businesses use certain strategies to help
prevent, avoid, and protect against
accidents, injuries, fires, thefts, defective
products, and environmental disasters.
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SECTION 34.2
Handling Business Risks
Key Terms
 insurance policy
 extended coverage
 fidelity bonds
 performance bonds
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SECTION 34.2
Handling Business Risks
Handling Business Risks
There are four basic ways that businesses
can handle risks:
 risk prevention and control
 risk transfer
 risk retention
 risk avoidance
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SECTION 34.2
Handling Business Risks
Risk Prevention and Control
Risks can be prevented and controlled by:
 screening and training employees
 providing safe conditions and safety
instruction
 preventing external theft
 deterring employee theft
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SECTION 34.2
Handling Business Risks
Screening and Training Employees
The best way to prevent the human risk of
employee carelessness and incompetence is
through effective employee screening,
orientation, and training. Properly trained
personnel are better able to meet customer
needs and wants. This also helps to prevent
the risk of lost sales through human error.
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SECTION 34.2
Handling Business Risks
Providing Safe Conditions and
Safety Instructions
To prevent employee injuries, businesses
can design stock and selling areas for
efficient foot traffic and merchandise storage,
and provide safety instruction on proper
ways to lift and store merchandise
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SECTION 34.2
Handling Business Risks
Preventing External Theft
Shoplifting involves the theft of merchandise
from a business. Effective store layouts,
security guards, and security devices can
help prevent shoplifting.
Robbery is the stealing of money or
merchandise by violence or threat. Robbery
prevention measures including keeping
limited cash on hand, installing video
cameras, and hiring security guards.
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SECTION 34.2
Handling Business Risks
Controlling Employee Theft
Employee theft is stealing merchandise, funds,
or other company property. Effective prevention
measures include:
 Closed-circuit television systems used in
conjunction with point-of-sale terminals to
monitor employee transactions.
 Preemployment screening to detect
attitudes about honesty.
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SECTION 34.2
Handling Business Risks
Risk Transfer
Some business risks can be handled by
transferring the risk to another business or to
another party. Three of the most common risk
transfers are:
 insurance
 product and service warranties
 transferring risks through business
ownership
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SECTION 34.2
Handling Business Risks
Purchasing Insurance
Businesses can insure property and people against
potential loss by purchasing an insurance policy—
a contract between a business and an insurance
company to cover a certain business risk.
Businesses can buy several kinds of insurance:
Performance bonds
Property insurance
Business liability insurance Life insurance
Personal liability insurance Credit insurance
Workers' compensation
Product liability insurance
insurance
Fidelity bonds
Slide 1 of 5
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SECTION 34.2
Handling Business Risks
Purchasing Insurance
Property insurance covers the loss of or
damage to buildings, equipment, machinery,
merchandise, furniture, and fixtures. It typically
covers replacement costs and loss of income.
Business liability insurance protects a
business against damages for which it may be
held legally liable, such as an injury to other
persons or damage to others' property.
Slide 2 of 5
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SECTION 34.2
Handling Business Risks
Purchasing Insurance
Personal liability insurance covers damage
claims made by customers and employees.
Product liability insurance protects against
business loss resulting from personal injury
from products manufactured or sold by a
business.
Fidelity bonds protect a business from
employee dishonesty.
Slide 3 of 5
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SECTION 34.2
Handling Business Risks
Purchasing Insurance
Performance bonds (surety bonds) insure
against losses that might occur when work is
not finished on time or as agreed.
Life insurance is often purchased by a
business owner to ensure that there will be
sufficient funds to pay business debts in the
event of the owner’s death.
Slide 4 of 5
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SECTION 34.2
Handling Business Risks
Purchasing Insurance
Credit insurance protects a business from
losses on credit extended to customers.
Credit life insurance pays the balance of
any loans in the event the borrower dies.
Workers' compensation insurance is paid
by employers to cover employee job-related
injuries and illness .
Slide 5 of 5
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SECTION 34.2
Handling Business Risks
Product and Service Warranties
Warranties are promises by the seller or
manufacturer concerning the performance
and quality of a product and protection
against loss.
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SECTION 34.2
Handling Business Risks
Transferring Risks Through Business
Ownership
The corporate form of ownership offers the
most protection from losses, because the
stockholders, as owners, have only limited
liability for business risks.
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SECTION 34.2
Handling Business Risks
Risk Retention
In some cases, it is impossible for
businesses to prevent or transfer risks,
so they retain or assume responsibility for
them. This is called risk retention. This can
happen because a business is not aware of
the risk, underestimates the risk, or simply
accepts the risk.
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SECTION 34.2
Handling Business Risks
Risk Avoidance
Certain risks can be avoided by anticipating
them in advance. Market research can lead
businesses to conclude that investment in a
product is not worth the risk.
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34.2 ASSESSMENT
Reviewing Key Terms and Concepts
1. Identify the four ways businesses handle risk.
2. Name four ways that companies prevent and
control risks.
3. How can businesses reduce the human risk of
on-the-job injuries?
4. What are the three principal ways to transfer risk?
5. What is the difference between risk retention and
risk avoidance?
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34.2 ASSESSMENT
Thinking Critically
What important factors should a business
consider when selecting an insurance
company?
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Marketing Essentials
End of Section 34.2
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