risk management
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Risk Management. Marketing Chapter 34. What is Business Risk. The primary goal of every business is to make a profit There is no guarantee this will happen The possibility of financial loss is known as Business Risk. What is Risk Management. - PowerPoint PPT PresentationTRANSCRIPT
Risk Managemen
t
MarketingChapter 34
What is Business Risk
O The primary goal of every
business is to make a profit
O There is no guarantee this will
happen
O The possibility of financial loss is
known as Business Risk
What is Risk Management
O The systematic process of managing an organization’s risks to achieve objectives in a manner consistent with public interest, human safety, environmental needs, and the law
Types of Business RiskO Economic Risk – result from changes in
overall business conditionsO Natural Risk – changes caused by natural
occurrences
O Human Risk – changes caused by employee dishonesty, errors, mistakes, or omissions as well as the unpredictability of customers or the workplace itself
Economic RiskO Changes include:
O The level or type of competition
O Changing consumer lifestyle
O Population changesO Inflation
O RecessionO Limited usefulness
or style of productO Product
obsolescenceO Government
regulation
Economic RiskO Competition
O Failure to keep up with competition leads to lost sales
O New foreign completion threatens businessO Products can be produced
cheaper over seas
Economic RiskO Consumer lifestyle and population
changeO Must adapt to changing want and
needs of the consumerO A change in population could mean an
increase or a decrease in potential consumersO New communities (Ashburn)O Aging communities (rural towns)
Economic RiskO Limited Usefulness and Product Obsolescence
O Products inevitably become outdatedO VCRsO AtariO Cassette tapes
O New products are always being developedO The development of more advanced products
makes older ones no longer usefulO Film cameras, typewriters, VCRs, portable stereo
Economic RiskO Recession and Inflation
O Businesses in areas with high unemployment will suffer because less people are spending
O If prices for basic products rise, people will have less disposable income
Economic RiskO Government Laws and Regulations
reduce overall profitsO Special licenses and permitsO Street and Sewer ImprovementsO Environmental Clean-upO Parking O Product Recalls
Natural RiskO Results in the loss or damage of property and
may cause businesses to be shut down. Catastrophes such as:
OFloodsOTornadosOHurricanesOFiresOLightningODroughtOEarthquakes
Natural RiskO Sometimes natural risks are
caused by people:O Power outagesO Civil unrestO Oil spillsO ArsonO TerrorismO War
Natural RiskO Businesses can insure against
unexpected losses from some natural risks, but not all
O Business insurance typically doesn’t cover acts of war or riot
O Special insurance is often needed to cover flood and earthquake damage
Natural RiskO Weather is an important natural
risk to considerO Some businesses and products
depend on predictable weather conditions for successO Ski resorts rely on snow fallO Beach resorts affected by
hurricanesO Farmers require sufficient rainfall
Human RiskO Range from the financial impact of
robbery or embezzlement to job related illness or injury
O Customer Dishonesty:O Customer Theft
O NRF determined that retailers lose $15-$37 billion a year from shoplifters
O Fraudulent PaymentO Nonpayment of accounts
Human RiskO Employee Risk:
O Unethical business practicesO EmbezzlementO Misuse of company
goods, resources or supplies
O Misuse of company time
Human RiskO Computer-Related Crime
O Worms or viruses downloaded by employees accidently
O Hackers or employees can penetrate secure networks and access proprietary company information or client listsO Training employees on privacy policies
and the proper handling of confidential information is necessary to decrease risk
Handling Business Risk
O There are 4 basic ways to handle business riskO Risk Prevention and ControlO Risk TransferO Risk RetentionO Risk Avoidance
Risk Prevention and Control
O Some business risks can be controlled or minimized by:O Screening and Training
EmployeesO Providing Safe Conditions
and Safety InstructionO Preventing External TheftO Deterring Employee Theft
Risk Prevention and Control
O Screening EmployeesO Background Checks/Reference
ChecksO Pre-employment TestsO Drug Testing
O Training EmployeesO Orientation, training and
instruction to understand policies and procedures
Risk Prevention and Control
O Providing Safe Conditions and Safety InstructionsO Design safe employee work zone for traffic and
storageO Training on proper ways to lift and store merchandiseO Develop accident management programs
O Check and correct hazardsO Ensure compliance with state and federal regulationsO First aid kits near workstationsO Distribute written safety and health plans
Risk Prevention and Control
O Preventing TheftO Largest and most common form of
human riskO Lock up valuable merchandiseO Adequate lightingO Tag products with anti-theft devicesO Hire security personnel and install
security devices
Risk Prevention and Control
O Preventing TheftO Robbery: stealing of money or
merchandise by violence or threatO Keep limited amounts of money
on handO Hire security guardsO Set alarms and lock doors
Controlling Employee Theft
O Employee theft represents 48% of all business losses due to theft
O Prevention:O Closed circuit television
O Cameras concealed in mannequins, ceilings or walls
O POS terminals (generates computer reports)O Monitors voids, cash intake, sales and refunds
Risk TransferO Transferring the risk of loss to another
business or partyO Purchasing Insurance
O Property Insurance – to protect buildings, equipment and machinery
O Liability Insurance – to protect company from damages which they can be held legal responsible
O Establishing Product Warranty Periods
Risk RetentionO When a business retains, or
assumes, the financial responsibility for the consequences of lossO Unsold merchandise after a change in
trendsO Damaged items returned or removed
from the sales floor
Risk AvoidanceO When a business refuses to engage
in particularly hazardous activityO Can often be determined by market
research O Is an investment/activity worth the
risk