1. Section 34.2 Handling Business Risks
Marketing Essentials
n Chapter 34 Risk Management
Section Handling Business Risks

2. Handling Business Risks
SECTION 34.2
Handling Business Risks
What You'll Learn
The ways businesses handle risks

3. Handling Business Risks
SECTION 34.2
Handling Business Risks
Why It's Important
Businesses use certain strategies to help prevent, avoid, and protect against accidents, injuries, fires, thefts, defective products, and environmental disasters.

4. Handling Business Risks
SECTION 34.2
Handling Business Risks
Key Terms
insurance policy
extended coverage
fidelity bonds
performance bonds

5. Handling Business Risks
SECTION 34.2
Handling Business Risks
Handling Business Risks
There are four basic ways that businesses can handle risks:
risk prevention and control
risk transfer
risk retention
risk avoidance

6. Handling Business Risks
SECTION 34.2
Handling Business Risks
Risk Prevention and Control
Risks can be prevented and controlled by:
screening and training employees
providing safe conditions and safety instruction
preventing external theft
deterring employee theft

7. Handling Business Risks
SECTION 34.2
Handling Business Risks
Screening and Training Employees
The best way to prevent the human risk of employee carelessness and incompetence is through effective employee screening, orientation, and training. Properly trained personnel are better able to meet customer needs and wants. This also helps to prevent the risk of lost sales through human error.

8. Handling Business Risks
SECTION 34.2
Handling Business Risks
Providing Safe Conditions and Safety Instructions
To prevent employee injuries, businesses can design stock and selling areas for efficient foot traffic and merchandise storage, and provide safety instruction on proper ways to lift and store merchandise

9. Handling Business Risks
SECTION 34.2
Handling Business Risks
Preventing External Theft
Shoplifting involves the theft of merchandise from a business. Effective store layouts, security guards, and security devices can help prevent shoplifting.
Robbery is the stealing of money or merchandise by violence or threat. Robbery prevention measures including keeping limited cash on hand, installing video cameras, and hiring security guards.

10. Handling Business Risks
SECTION 34.2
Handling Business Risks
Controlling Employee Theft
Employee theft is stealing merchandise, funds, or other company property. Effective prevention measures include:
Closed-circuit television systems used in conjunction with point-of-sale terminals to monitor employee transactions.
Preemployment screening to detect attitudes about honesty.

11. Handling Business Risks
SECTION 34.2
Handling Business Risks
Risk Transfer
Some business risks can be handled by transferring the risk to another business or to another party. Three of the most common risk transfers are:
insurance
product and service warranties
transferring risks through business ownership

12. Handling Business Risks
SECTION 34.2
Handling Business Risks
Purchasing Insurance
Businesses can insure property and people against potential loss by purchasing an insurance policy— a contract between a business and an insurance company to cover a certain business risk. Businesses can buy several kinds of insurance:
Property insurance
Business liability insurance
Personal liability insurance
Product liability insurance
Fidelity bonds
Performance bonds
Life insurance
Credit insurance
Workers' compensation insurance
Slide 1 of 5

13. Handling Business Risks
SECTION 34.2
Handling Business Risks
Purchasing Insurance
Property insurance covers the loss of or damage to buildings, equipment, machinery, merchandise, furniture, and fixtures. It typically covers replacement costs and loss of income.
Business liability insurance protects a business against damages for which it may be held legally liable, such as an injury to other persons or damage to others' property.
Slide 2 of 5

14. Handling Business Risks
SECTION 34.2
Handling Business Risks
Purchasing Insurance
Personal liability insurance covers damage claims made by customers and employees.
Product liability insurance protects against business loss resulting from personal injury from products manufactured or sold by a business.
Fidelity bonds protect a business from employee dishonesty.
Slide 3 of 5

15. Handling Business Risks
SECTION 34.2
Handling Business Risks
Purchasing Insurance
Performance bonds (surety bonds) insure against losses that might occur when work is not finished on time or as agreed.
Life insurance is often purchased by a business owner to ensure that there will be sufficient funds to pay business debts in the event of the owner’s death.
Slide 4 of 5

16. Handling Business Risks
SECTION 34.2
Handling Business Risks
Purchasing Insurance
Credit insurance protects a business from losses on credit extended to customers.
Credit life insurance pays the balance of any loans in the event the borrower dies.
Workers' compensation insurance is paid by employers to cover employee job-related injuries and illness .
Slide 5 of 5

17. Handling Business Risks
SECTION 34.2
Handling Business Risks
Product and Service Warranties
Warranties are promises by the seller or manufacturer concerning the performance and quality of a product and protection against loss.

18. Handling Business Risks
SECTION 34.2
Handling Business Risks
Transferring Risks Through Business Ownership
The corporate form of ownership offers the most protection from losses, because the stockholders, as owners, have only limited liability for business risks.

19. Handling Business Risks
SECTION 34.2
Handling Business Risks
Risk Retention
In some cases, it is impossible for businesses to prevent or transfer risks, so they retain or assume responsibility for them. This is called risk retention. This can happen because a business is not aware of the risk, underestimates the risk, or simply accepts the risk.

20. Handling Business Risks
SECTION 34.2
Handling Business Risks
Risk Avoidance
Certain risks can be avoided by anticipating them in advance. Market research can lead businesses to conclude that investment in a product is not worth the risk.

21. Reviewing Key Terms and Concepts
ASSESSMENT
34.2
Reviewing Key Terms and Concepts
1. Identify the four ways businesses handle risk.
2. Name four ways that companies prevent and control risks.
3. How can businesses reduce the human risk of on-the-job injuries?
4. What are the three principal ways to transfer risk?
5. What is the difference between risk retention and risk avoidance?

22. ASSESSMENT Thinking Critically 34.2
What important factors should a business consider when selecting an insurance company?

23. Marketing Essentials
End of Section 34.2