Risk Management
The possibility of financial loss is risk. The systematic process of managing exposure to risk is risk management. There are three types of business risks— economic natural and human
Various examples of economic risks include: amount and type of competition changing consumer lifestyles population changes limited usefulness or style of some products product obsolescence government regulation inflation recession
Various types of natural risks are: floods tornadoes hurricanes fires lightning droughts earthquakes unexpected changes in normal weather conditions
Various types of human risks are: human mistakes unpredictability of customers, employees, and the work environment (what does this mean?)
Handling Business Risks There are four basic ways that businesses can handle risks: risk prevention and control risk transfer risk retention risk avoidance
Risk prevention and control Screen and train employees Provide safe conditions and instruction Prevent external theft Control employee theft
Risk Transfer Purchase insurance Property insurance…what does that cover?? Covers the loss of or damage to buildings, equipment, machinery, merchandise, furniture, and fixtures Extended coverage….. what does that cover?? An addition to the policy to add things not typically covered (water/sewer/theft) Business liability ….. what does that cover?? Protects a business against liability from claims such as personal injury or damage to others property Personal liability….. what does that cover?? Protects individuals against liability from claims of injury as a result of their actions Product liability…. what does that cover?? Protects against liability from claims of injury or damage to property caused by products manufactured or sold by a company
Fidelity bonds protect a business from employee dishonesty Fidelity bonds protect a business from employee dishonesty. This is where the term “bonded” originates. Performance bonds (also called surety bonds) insure against losses that might occur when work or a contract is not finished on time or as agreed. Life insurance pays money to beneficiaries upon the insured passing. Credit insurance protects a business from losses on credit extended to customers. Worker’s compensation is paid by employers to cover employees in case of a job related injury or illness.