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:  New Lacrosse Team moves to Charlotte in 2011 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  In August 2011, a massive gust of wind brought down a stage at the Indiana State Fair on Saturday night, killing at least four and injuring 24

10. 3. Human risk  Risk associated with the possibility of loss due to human factors.  Risks affiliated with employees or endorsers might include dishonesty, incompetence, accidents, illness or negligence

11. Human risk  Customer unpredictability  Employee unpredictability  Human mistakes including dishonesty, fraud, accidents  Dishonesty  Incompetence  Accidents  Illness  Negligence

12. Examples of human risk:  Lowes Motor Speedway removed first 2 rows of seats on front stretch to protect fans from flying debris

13. Write the definition for the three types of Risk that most commonly affect businesses.  In a bullet point under each definition create and example describing the types of risks (Do not copy from others). Student Response: RISK (STEP 1) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

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

15. Risk Management Plan  Outlines procedures for handling all forms of business risk

16. Making a Risk Management 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

17. Risk Prevention Involves dealing with risks before they occur Thinking Ahead

18. Risk Prevention 5 STEPS 1. Screening potential employees 2. Training and orientation 3. Providing safety 4. Preventing external theft 5. Preventing internal theft

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

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

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

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

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

24. As a group you will be given a business scenario  In at least 3 bullet points determine possible risks for the business  Describe ways to involve at least 4 out of the 5 risk prevention steps Student Response: RISK (STEP 2) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

25. Risk transfer Involves passing risk 1. Purchasing insurance 2. Using warranties 3. Using warranties

26. 1.Purchasing insurance against a potential loss. Examples:  Property  Liability  Business interruption  Income insurance.

27. 2.Using warranties to transfer risk to manufacturer Warranty a written guarantee that a product or service will meet certain quality standards

28.  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 2.Using warranties to transfer risk to manufacturer

29. 3.Business ownership  Type of business determines how much risk is incurred by each owner

30. Types of Businesses  sole proprietorship  Partnership  corporation 3.Business ownership individual owners shareholders

31. 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

32. 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

33. As a group you will be given a business scenario  Describe 2 situations in which you plan to transfer the risk of your business Student Response: RISK (STEP 3) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

34. Write the definition for the three types of Risk that most commonly affect businesses.  In a bullet point under each definition create and example describing the types of risks (Do not copy from others). Student Response: RISK (STEP 1) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

35. As a group you will be given a business scenario  In at least 3 bullet points determine possible risks for the business  Describe ways to involve at least 4 out of the 5 risk prevention steps Student Response: RISK (STEP 2) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.

36. As a group you will be given a business scenario  Describe 2 situations in which you plan to transfer the risk of your business Student Response: RISK (STEP 3) Complete all student responses for Risk on the same sheet of paper to be turned in at the end of this presentation.