CHAPTER 34: RISK MANAGEMENT

I. KINDS OF RISKS THE POSSIBILITY OF LOSS OR FAILURS. THERE ARE 3 TYPES:

A. ECONOMIC RISKS- OCCUR FROM CHANGES IN OVERALL BUSINESS CONDITIONS. THESE CHANGES CAN INCLUDE:

AMOUNT OR TYPE OF COMPETITION CHANGING CONSUMER LIFESTYLES POPULATION CHANGES LIMITED USEFULLNESS GOVERNMENT REGULATIONS INFLATION RECESSION

B. NATURAL RISKS- OCCUR FROM NATURAL CAUSES. SOME ITEMS ARE AFFECTED BY WEATHER CONDITIONS(BOATS, SKIS, SWIMMING POOLS) TYPES OF NATURAL RISKS:

FLOODS FIRES EARTH QUAKE DRAUGHT LIGHTENING HURRICANES

C. HUMAN RISKS- CAUSED BY HUMAN ERROR OR MISTAKE AND THE UNPREDICTIABILITYOF EMPLOYEES OR CUSTOMERS. TYPES OF HUMAN RISKS:

CUSTOMER OR EMPLOYEE DISHONESTY EMPLOYEE CARELESSNESS EMPLOYEE INCOMPETENCE CUSTOMER OR EMPLOYEE ACCIDENTS EMPLOYEE ILLNESS

II. HANDLING BUSINESS RISKS THERE ARE FOUR BASIC WAYS THAT A BUSINESS CAN HANDLE RISK:

A. RISK PREVENTION AND CONTROL -PROVIDE SAFE CONDITIONS AND SAFETY INSTRUCTIONS -SCREENING AND TRAINING EMPLOYEES -PREVENTING SHOPLIFTING

-CONTOLLING EMPLOYEE THEFT (PRE-EMPLOYMENT TESTING, PROSECUTION, INTERNAL BUSINESS STANDARDS, THEFT CONSEQUENCES) -PREVENTING ROBBERIES-(VIDEO CAMERAS, LOW AMOUNT OF MONEY ON HAND, SECURITY GUARDS)

B. RISK TRANSFER- SOME RISKS CAN BE REDUCED BY TRANSFERRING THE RISK TO ANOTHER BUSINESS OR PARTY.

-PURCHASING INSURANCE -TYPE OF INSURANCE(FIRE, VEHICLE, LIFE, MEDICAL, HOME, FORGERY, BURGLARY, PERSONAL LIABILITY)

C. TRANSFERRING RISKS THROUGH BUSINESS OWNERSHIP IN A SOLE-PRIOPERTORSHIP THE INDIVIDUAL OWNER ASSUMES ALL RISKS. PARTNERSHIPS AND CORP. ALLOW OTHERS TO SHARE IN THE RISKS.

D. RISK RETENTION- IN SOME CASES IT IS IMPOSSIBLE FOR BUSINESSES TO PREVENT OR TRANSFER RISKS, SO THEY RETAIN OR ASSUME RESP. FOR THEM

BUSINESS DO THIS BECAUSE: -THEY ARE UNAWARE OF THE RISK -THEY UNDERESTIMATE THE RISK -THEY ANTICIPATE A PROFIT BY TAKING THE RISK.