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 risk.◦ 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

measures

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!

Method Activity

Avoid Choose not to participate in the risky activity.

Transfer Find another business to complete the activity.

Insure Purchases insurance to pay for any losses.

Assume Complete the activity with full responsibility.

How do individuals and businesses pay for large economic losses?◦ Insurance – planned protection against economic

losses. 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.

Personnel

Property

Operations

Health◦ Protects against high costs of individual health

care

Disability◦ Provides payments to employees who are not

able to work for an extended period of time due to illness or injury

Life◦ 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.

Autos Trucks Other business vehicles

Insurance to provide compensation for ongoing business expenses for temporary shutdown due to flood, fire, or other major problem.

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 protection.

Economic Conditions◦Recession, Depression

Consumer Demand◦Can’t always count on consumer loyalty

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.

Awareness 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 Patent

◦ Exclusive right of an inventor to make, sell, and use a product or process. Designed to encourage innovation and progress.

Trademark◦ A distinctive name, symbol, word, picture, or

combination of these that a company uses to identify products or services.

Copyright◦ Protects the original works of authors, composers,

playwrights, artists, and publishers. Counterfeiting

◦ Refers to illegal uses of intellectual property, patents, trademarks, and copyrights.

T

The End