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
Assume the risk
Yikes! Gotta go!
Choose not to participate in the
risky activity.
Find another business to complete
the activity.
Purchases insurance to pay for any
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.
◦ Protects against high costs of individual health care
◦ Provides payments to employees who are not able
to work for an extended period of time due to
illness or injury
◦ 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.
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.
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
◦ Exclusive right of an inventor to make, sell, and use
a product or process. Designed to encourage
innovation and progress.
◦ A distinctive name, symbol, word, picture, or
combination of these that a company uses to
identify products or services.
◦ Protects the original works of authors, composers,
playwrights, artists, and publishers.
◦ Refers to illegal uses of intellectual property,
patents, trademarks, and copyrights.
The End