What is Risk? Risk – the possibility of loss or injury Business Risk – risk of loss that is naturally incurred by owning or operating a business
Risk Management the systematic process of managing risk to achieve your business objectives Risk cannot be totally eliminated, but it can be reduced and managed.
Types of Risk Insurable vs. Uninsurable Controllable vs. Uncontrollable
Insurance Insurable Risk Uninsurable Risk Meets an insurance company’s criteria for coverage Examples: property insurance vehicle insurance renter’s insurance Unacceptable to insurance carriers because the likelihood of loss is too high Example: Store owners of shops in flood zones might have difficulty finding insurance.
Out of Control? Controllable Risk Uncontrollable Risk Occurs when conditions can be controlled to minimize the chance of harm Example: Environmental damage can often be prevented. Cannot be reduced or prevented Example: The risks of doing business in a global marketplace cannot be controlled.
Other Types of Risk
Pure Risk Threat of loss with no opportunity for gain Examples include: Employee theft Burglary Bad checks Accidents involving customers or employees
Economic Risk Occurs when there is likelihood of financial loss May result from changes in overall business conditions Example: If a competitor offers more features, other businesses need to change their product or face losses. Other Economic Risks Personal Risk Property Risk Liability Risk
Human Risk Risk of harm caused by human mistakes, dishonesty, or other factors attributed to people. Customer Dishonesty theft, fraudulent payment, non payment Employee Risk incompetence, shoplifting, accidents, fraud, computer-related crimes
Natural Risk The possibility of a catastrophe caused by natural elements that can cause damage or loss of property. Examples include floods, tornados, hurricanes, fires, lightning, droughts, earthquakes, etc. Other examples might include power outages, oil spills, arson, and terrorism.
Think about human risk. What are the biggest concerns a business like your training station might have? How does your training station handle it? Think about it!
Planning Risk Management
GAME TIME! Divide into three groups (4 to 6 students per group). You will be taking risks in either The Game of Life or Monopoly! Your daily participation grade for today will be based on your participation in the game. Have some fun! The winner in each group will receive 10 points of extra credit… yay!
Handling Risk There are 4 ways to handle risk. Most businesses use a combination of these methods.
Risk Avoidance Involves thinking about the consequences of decisions Businesses avoid risk by not engaging in hazardous activities. Example: Market research can lead a business to conclude that investment in a product or service is not worth the economic risk.
Risk Reduction Retail stores place electronic tags on expensive merchandise to discourage theft. Business owners reduce risk by designing work areas to lower the chances of accidents or fires. Managers educate their employees about the safe use of equipment.
Reducing Hiring Risk How do businesses reduce risk from employee carelessness and incompetence? Hiring sometimes involves: Employee screening Employee orientation / training Background checks Drug testing
Risk Retention Bearing financial responsibility for the consequences of loss Certain types of risk are impossible to avoid. Example: Businesses retain the risk that customer tastes will change and merchandise will not sell. They might underestimate the risk and end up stocking too much merchandise.
Risk Transfer Insurance provides a way to transfer a risk of loss to an insurance company. Divides possible loss among large numbers of people or companies Each company pays a fee for protection