8 01 summarize the concept of risk management n.
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8.01 Summarize the concept of risk management. Risk. Possibility of a financial loss or failure Individuals or companies willing to take risk because of opportunity for success or financial gain. 3 Most common risks for a business. Economic Natural Human. 1. Economic risk.

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8.01 Summarize the concept of risk management

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  • Possibility of a financial loss or failure
  • Individuals or companies willing to take risk because of opportunity for success or financial gain
1 economic risk
1. Economic risk
  • Risk associated with the possibility of loss due to a change in the economy
  • A business might experience monetary loss due to changes in overall business conditions
economic risk involves

Changing consumer lifestyles


Population changes

Limited usefulness or popularity of some products


Government regulation


Economic risk involves…
examples of economic risk
Examples of economic risk:
  • Carolina Hurricanes, Carolina Cobras, and NC State basketball team all played at RBC Center in Raleigh
  • Carolina Cobras moved to Charlotte to increase opportunity to make profit
2 natural risk
2. Natural risk
  • Risk associated with possibility of loss due to natural causes
natural risk involves






Other unexpected changes in normal weather conditions

Natural risk involves…
example of natural risk
Example of natural risk
  • Barry Manilow concert cancelled in Atlanta due to snow (Jan ’08)


3 human risk
3. Human risk
  • Risk associated with the possibility of loss due to human factors.
human risk
Human risk
  • Risks affiliated with employees or endorsers might include dishonesty, incompetence, accidents, illness or negligence
examples of human risk
Customer unpredictability

Employee unpredictability

Human mistakes including dishonesty, fraud, accidents

Lowes Motor Speedway removed first 2 rows of seats on front stretch to protect fans from flying debris

Examples of human risk:
recent human risk
Recent Human Risk
  • Live Earth concert cancelled due to attacks in Mumbai, India (Nov ’08)


risk management
Risk management
  • The management, control, and prevention of exposure to internal or external risks
risk management plan
Risk management plan
  • Outlines procedures for handling all forms of business risk
risk management plan1
Risk management plan
  • Important considerations to be included in a plan:
    • Identify the potential business risks
    • Measure the prioritize business risks
    • Determine how to effectively handle each risk
    • Implement risk management plan
risk prevention
Risk prevention
  • Involves dealing with risks before they occur
risk prevention involves
Risk prevention involves:
  • Screening potential employees
  • Interviews and aptitude tests are the two most common ways businesses screen employees
risk prevention involves1
Risk prevention involves:
  • Training and orienting new employees to company polices and procedures
risk prevention involves2
Risk prevention involves:
  • Providing safe conditions and safety instructions for employees
  • Proper safety instruction can reduce the possibility of on-the-job accidents
risk prevention involves3
Risk prevention involves:
  • Preventing external theft
    • Shoplifting is stealing merchandise for a business
    • Robbery is stealing merchandise or money through the use of force or threat
risk prevention involves4
Risk prevention involves:
  • Preventing internal theft
    • Dishonest employees could steal merchandise (larceny) or money (embezzlement) from a company
risk transfer
Risk transfer
  • Involves passing risk
risk transfer accomplished by
Risk transfer accomplished by:
  • Purchasing insurance against a potential loss.
    • Examples include property, liability, business interruption, and income insurance.
risk transfer accomplished by1
Risk transfer accomplished by:
  • Using warranties to transfer risk to manufacturer
    • A warranty is a written guarantee that a product or service will meet certain quality standards
risk transfer accomplished by2
Risk transfer accomplished by:
  • Warranties (con’t)
  • If product or service does not meet the expectations of consumer, or if product fails, manufacturer is held responsible
  • Most warranties have specific time or use limits
risk transfer accomplished by3
Risk transfer accomplished by:
  • Business ownership
  • Type of business determines how much risk is incurred by each owner
  • In a sole proprietorship or partnership, all risks assumed by individual owners
risk transfer accomplished by4
Risk transfer accomplished by:
  • Business ownership (con’t)
  • In contrast, a corporation distributes risk among all of its shareholders.
risk retention
Risk retention
  • Involves assuming or acknowledging a business risk and outcome
  • Some risks are inevitable or uncontrollable
  • Some risks cannot be transferred, avoided, insured or prevented
risk avoidance
Risk avoidance
  • May be achieved by anticipating business risk and preparing for risk in advance
  • Avoid opportunities or investments that have potentially high risk
  • Pursue an option or strategy that involves less risk