You are on page 1of 17

Risk Management and Types of Risks

Lesson Objectives 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  .

and the law. organize.What is Risk Management? Risk . and control all available resources to reach company goals Risk Management .The possibility of financial loss Management . human safety.The business function used to plan. environmental factors. .The systematic process of managing an organization’s risk exposure to achieve objectives in a manner consistent with public interest.

Kinds of Risks 3 Types Economic Natural Human .

– This can include:  amount or type of competitor(s)  changing consumer lifestyle  population changes  government regulations  inflation  recession .Economic Risks – These risks occur from changes in overall business conditions.

Natural Risks Natural risks are result from natural disasters or disruptions  floods  tornadoes  hurricanes  fires  droughts  lightning  earthquakes  even sudden abnormal weather conditions .

as well as the unpredictability of customers.Human Risks These are caused by human mistakes and errors. or the work environment This could include:        Theft injury on the job bad checks employee error Negligence Incompetence etc. employees. .

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 – 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 .

contract that covers a business with a specific type of insurance reducing risks – Business liability . – Personal liability . usually up to only $1 million.protects from personal injury caused by product manufactured or sold by the business .Insurance – Insurance policy .insurance protects a business against damages for which it may be held legally liable.covers damages by customer and/or employees – Product liability .

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 .

. a entrepreneur who owns a sole-proprietorship assumes all the risk as where a stockholder in a corporation assumes only his percentage of the risk.Transference Through Ownership  The total amount of risk the business must handle depends in part on the type of business ownership – For example.

Risk Acceptance 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 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  .

and the law  There are more ways than one to handle risks effectively. warranties.anticipating product failure and not investing in product/service . environmental factors.insurance.What We Have Learned  The three types of risks: economic. human  The terms important to Risk Management: – risk .the possibility of financial loss – risk management . natural. and transferring ownership risk acceptance .assume responsibility of loss risk avoidance .the process of how a business controls the risk of financial loss while staying consistent with the public’s interest. safety. – – – – Loss prevention risk transfer .