2. Economics LAP 3 Business Risk

3. Objectives Explain types of business risk. Explain how businesses deal with risk.

4. Explain types of business risk. Objective

5. You face risk every day.You face risk every day. You try to prevent bad things from happening.You try to prevent bad things from happening. That’s the same thing businesses do!That’s the same thing businesses do!

6. The possibility of loss, failure, or even gainThe possibility of loss, failure, or even gain A business can lose it all or make a fortune.A business can lose it all or make a fortune. What Is Business Risk?

7. Economic risks—chances of loss due to changes in the marketEconomic risks—chances of loss due to changes in the market Natural risks—chances of loss resulting from natural causesNatural risks—chances of loss resulting from natural causes Human risks—chances of loss caused by human weakness and unpredictabilityHuman risks—chances of loss caused by human weakness and unpredictability Classifications of Business Risk

8. CompetitionCompetition Shifts in customer demandShifts in customer demand ObsolescenceObsolescence Government interventionGovernment intervention Business conditionsBusiness conditions Choice of business locationChoice of business location Types of Economic Risks

9. Weather conditions—floods, tornadoes, fires, lightning, earthquakesWeather conditions—floods, tornadoes, fires, lightning, earthquakes Natural Risk Certain geographic areas are more likely to experience specific weather conditions.Certain geographic areas are more likely to experience specific weather conditions. Perishability—natural spoiling of food, etc.Perishability—natural spoiling of food, etc.

10. Human Risks DishonestyDishonesty CarelessnessCarelessness IncompetenceIncompetence Possibility of accident or illnessPossibility of accident or illness

11. All business risks are pure or speculative.All business risks are pure or speculative. Pure risk—possibility of loss or no lossPure risk—possibility of loss or no loss Speculative risk—possibility of loss, no change, or gainSpeculative risk—possibility of loss, no change, or gain Pure Risks vs. Speculative Risks

12. Explain how businesses deal with risk. Objective

13. AvoidingAvoiding Preventing/ControllingPreventing/Controlling TransferringTransferring RetainingRetaining Ways to Handle Risk

14. Not participating in the risky activityNot participating in the risky activity If no risk, no danger!If no risk, no danger! Avoiding Risk

15. Identifying a risk Taking measures to prevent or reduce it Preventing/Controlling Risk

16. Contractual agreementsContractual agreements Business organizationBusiness organization InsuranceInsurance Transferring Risk

17. When a business:When a business:  Is unaware of the risk  Underestimates the risk  Feels that the risk is small  Believes there is a chance of return Retaining Risk

18. Consider the risks of operating a theme park. Identify risks, and recommend how to handle them.

19. Responsibility for risk is not always clear. Construction company takes reasonable precautions. But, worker still falls. Whose fault is it?

20. MarkED Acknowledgments Original Developers Christopher C. Burke, Mary C. Hollaway, MarkED Version 1.0 Copyright © 2007 MarkED Resource Center

21. Digital-based photography sources: DIGITAL STOCK CORP.; Business & Industry Obj. A: #009 Photos copyright 1998 Corbis Corp. 750 Second Street, Encinitas, CA 92024 DIGITAL VISION; Teenager Today Obj. B: #130271 Photos copyright Digital Vision Ltd., all rights reserved. 833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada T2P 3T5

22. Digital-based photography sources: GAZELLE TECHNOLOGIES, INC.; Earth & Space Photos Obj. A: #IMG0005 Photos copyright Gazelle Technologies Inc. PHOTODISC, INC. Business & Industry Vol. 7 Obj. A: #69169 Photos copyright PhotoDisc, Inc. 2013 Fourth Ave., Seattle, WA 98121

23. Copyright: All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.