1. 8.01 Summarize the concept of risk management

2. Risk Possibility of a financial loss or failure Individuals or companies willing to take risk because of opportunity for success or financial gain

3. 3 Most common risks for a business 1.Economic 2.Natural 3.Human

4. 1. Economic risk Risk associated with the possibility of loss due to a change in the economy A business might experience monetary loss due to changes in overall business conditions

5. Economic risk involves…  Competition  Changing consumer lifestyles  Inflation  Population changes  Limited usefulness or popularity of some products  Obsolescence  Government regulation  Recession

6. Examples of economic risk: Carolina Hurricanes, Carolina Cobras, and NC State basketball team all played at RBC Center in Raleigh Carolina Cobras moved to Charlotte to increase opportunity to make profit

7. 2. Natural risk Risk associated with possibility of loss due to natural causes

8. Natural risk involves… Drought Earthquakes Hurricanes Tornadoes Lightning Fires Other unexpected changes in normal weather conditions

9. Example of natural risk Lubbock Texas, 2002, Brittany Spears concert was cancelled due to power outage from a storm

10. 3. Human risk Risk associated with the possibility of loss due to human factors.

11. Human risk Risks affiliated with employees or endorsers might include dishonesty, incompetence, accidents, illness or negligence

12. Examples of human risk: Customer unpredictability Employee unpredictability Human mistakes including dishonesty, fraud, accidents Lowes Motor Speedway removed first 2 rows of seats on front stretch to protect fans from flying debris

13. Risk management The management, control, and prevention of exposure to internal or external risks

14. Risk management plan Outlines procedures for handling all forms of business risk

15. Risk management plan Important considerations to be included in a plan: 1.Identify the potential business risks 2.Measure the prioritize business risks 3.Determine how to effectively handle each risk 4.Implement risk management plan

16. Risk prevention Involves dealing with risks before they occur

17. Risk prevention involves: 1.Screening potential employees Interviews and aptitude tests are the two most common ways businesses screen employees

18. Risk prevention involves: 2.Training and orienting new employees to company polices and procedures

19. Risk prevention involves: 3.Providing safe conditions and safety instructions for employees Proper safety instruction can reduce the possibility of on-the- job accidents

20. Risk prevention involves: 4.Preventing external theft Shoplifting is stealing merchandise for a business Robbery is stealing merchandise or money through the use of force or threat

21. Risk prevention involves: 5.Preventing internal theft Dishonest employees could steal merchandise (larceny) or money (embezzlement) from a company

22. Risk transfer Involves passing risk

23. Risk transfer accomplished by: 1.Purchasing insurance against a potential loss. Examples include property, liability, business interruption, and income insurance.

24. Risk transfer accomplished by: 2.Using warranties to transfer risk to manufacturer A warranty is a written guarantee that a product or service will meet certain quality standards

25. Risk transfer accomplished by: 2.Warranties (con’t) If product or service does not meet the expectations of consumer, or if product fails, manufacturer is held responsible Most warranties have specific time or use limits

26. Risk transfer accomplished by: 3.Business ownership Type of business determines how much risk is incurred by each owner In a sole proprietorship or partnership, all risks assumed by individual owners

27. Risk transfer accomplished by: 3.Business ownership (con’t) In contrast, a corporation distributes risk among all of its shareholders.

28. Risk retention Involves assuming or acknowledging a business risk and outcome Some risks are inevitable or uncontrollable Some risks cannot be transferred, avoided, insured or prevented

29. Risk avoidance  May be achieved by anticipating business risk and preparing for risk in advance  Avoid opportunities or investments that have potentially high risk  Pursue an option or strategy that involves less risk