2. Business Risks Terms
Risk
– The possibility of a financial loss.
Risk management
– The process of managing a business’s
exposure to risk in order to achieve
business objectives.
Business risk
– The possibility of business failure or loss.
3. Types of Risks
Speculative risk
– Risking loss to make a profit.
– Possibility of seeing a loss, no change, or
actually making profit
– Examples include
• buying new machinery
• constructing new buildings
Pure risk
– The possibility of loss to a business without any
possibility of gain
• Economic risks
• Natural risks
• Human risks
4. Economic Risks
Risks that result from changes in overall
business conditions. Examples of economic
risks include:
Competition – More businesses that would
compete with your business open in the area.
Changing consumer lifestyles – The lifestyle
of the consumers in your area changes due to
new industry opening or closing, new
businesses, etc.
Population changes – Potential customers
– moving out due to economic downfall
– or moving in due to new economic opportunities
5. Economic Risks continued
Limited usefulness of products - new
products introduce replace your products or
the needs of customers’ needs change
Inflation – the availability of cash to
customers will reflect in the buying patterns.
Product obsolescence – products you
offer to the public is not longer needed or
out-of-date.
6. Economic Risks continued
Government regulation – new
regulations can change the status of
your products. Products can be
recalled because of safety measures
such as baby products or medicines.
Recession – Just as with inflation the
availability of cash affect customer
purchases.
8. Human Risks
Risks caused by human errors as well as
the unpredictability of customers,
employees, or the work environment.
Shoplifting
Employee theft
Burglary
Robbery
Computer crime
Stolen credit cards and bad checks
Accidents and injury
10. Ways to Reduce Risk
Design work areas to reduce the chance
of accident or fire.
Educate employees on safe use of
equipment.
Check and service safety equipment on
a regular basis.
Stress the limits of your company’s
products.
– Provide customers with instructions on the
proper and safe use of products, as well as
warnings about possible hazards.
11. Ways to Reduce Risk
Shoplifting is a form of external theft that
involves taking items from a business
without paying for them.
Ways to reduce shoplifting.
– Educate employees on shoplifting prevention
guidelines.
– Provide effective store layouts with adequate
lighting and orderly displays.
– Store expensive items in locked display cases or
tag expensive merchandise with electronic
devices.
– Employ the use of two-way mirrors, security
personnel, or closed circuit television.
12. Ways to Reduce Risk
Control employee theft.
• Install closed-circuit television systems and
point-of-sale terminals that generate
computerized reports.
• Provide company policies that make
employees aware of expectations.
• Utilize pre-employment testing to detect
employee attitudes about honesty.
13. Ways to Reduce Risk
Implement ways to reduce robbery.
Robbery involves the taking of property
by violence or threat.
– Limit the amount of money kept on hand.
• Use a safe.
– Handle bank deposits discreetly.
– Install surveillance cameras to help identify
robbers.
– Schedule employees so that no one is alone in a
business at any time.
– Hire security guards.
– Provide adequate lighting inside and outside of
the building.
– Make sure that doors are locked and alarms are
set at night.
14. Ways to Reduce Risk
Purchase property insurance to cover:
– the loss of physical property such as cash,
inventory, vehicles, buildings.
– real property such as buildings, land, and fixtures.
– personal property such as vehicles, clothing,
furniture, jewelry.
Purchase business interruption insurance
to make up for:
– lost income if a business is shut down for
repairs or rebuilding.
– Allows a business owner to continue to pay rent,
salaries, and other key payments.
15. Ways to Transfer Risk
Purchase casualty insurance to:
– Protects a business from lawsuits.
– Pays the claim if a person is injured on your
business premises or if a worker causes
damage
– Types of casualty insurance
• Errors-and-omissions insurance: Protects businesses
from lawsuits resulting from mistakes in advertising.
• Product liability insurance: Protects manufacturers
from claims for injuries that result from using their
products.
• Fidelity bonds: Protect companies from employee
theft.
• Performance bonds: Protect a business if work is not
finished on time or as agreed.
16. Ways to Transfer Risk
Purchase life insurance to:
– Pay a business in the event of the insured
person’s death.
– Covers owner(s) and key management
employees
17. Ways to Transfer Risk
Pay Workers’ Compensation
– A government-regulated program which provides
medical benefits and income to employees who
are injured on the job.
– Compensation is dependent on the wages or
salary of the employee, the seriousness of the
injury, and whether the injury is permanent or
not.
– Frees businesses from the threat of employee
lawsuits
18. Business Risk Retention
Businesses is self-insurance against
business loss.
– If a business cannot or does not provide for
ways to transfer risk using one of the
described means, the business should set
aside money each month to help cover the
costs should a loss occur.
– Planning for the unexpected, can save a
business.
19. Emergency Planning
Businesses must:
– create emergency response plans to help
handle emergency situations more
smoothly.
– have procedures in place before a crisis
occurs.
