Chapter 12 (1-2) Risk Management

Chapter 12 (1-2) Risk Management

12-1 Business Risk

What types of risk do businesses face, and how can they deal with those risks?

Three main types of risk

• Human Risk

• Natural Risk

• Economic Risk

Risk

Which is some kind of loss that can happen in a business

Categorize Risk

• Human risks are those caused by the actions of individuals, such as employees or customers

• Natural risks are caused by acts of nature. Examples are storms, fires, floods, and earthquakes. 

• Economic risks occur because of changes in business conditions. 

Prepare to Face Risks

• Risk management is taking action to prevent or reduce the possibility of loss to your business.

•  You can avoid risk, assume risk, or transfer risk

Contd.

• Avoid Risk (Example: if you think a product you are developing will not meet market needs, you may decide to avoid financial risks caused by low sales by halting production of the product.)

• Assume Risk (Example: If your market research indicates the product you are developing will be successful with your target market, you will most likely produce and sell the product even though there is still a chance of lower sales than expected.

• Transfer Risk (Example: You will be able to protect yourself against the financial losses from some risks by purchasing insurance.)

Multiple Choice

What kind of risk would employee theft be?

• Natural

• Human

• Economic

Multiple Choice

What risk would a tornado hitting a small business be?

• Human

• Natural

• Economic

To prepare for risk, you should:

• Determine what can go wrong (Complete a risk assessment involves looking at all aspects of your business and determining the risks you face.

• Develop a Plan (Developing a risk management plan,  If you are developing an emergency action plan, the National Safety Council, a nongovernmental organization that promotes safety, is a good source

• Communicate your Plan (Let your managers and employees know about your plan for handling risks. To ensure your plan is carried out properly, assign activities and responsibilities to the appropriate people)

Multiple Choice

What should you do to prepare for business risks?

• determine what can go wrong, develop a plan, and communicate your plan.

• Go ask a friend to write it for you

• do nothing

Types of Theft

• Shoplifting is the act of knowingly taking items from a business without paying

• Instruct your employees to watch for customers who appear suspicious..

• Hire security guards or off-duty police officers to patrol your store.

• Post signs indicating that you prosecute shoplifters.

Employee Theft

• Prevent dishonest employees from joining your company

• Install surveillance systems.

• Establish a tough company policy regarding employee theft

• Establish a tough company policy regarding employee theft

Other Types of Theft

• Robbery (To limit losses in the event of a robbery, many businesses keep a minimal amount of cash in the cash register.)

• Credit Card Fraud (To prevent stolen credit cards from being used to purchase goods, you can install an electronic credit authorizer.)

• Bounced Check (You can also charge a fee if a customer writes a bad check)

Open Ended

How can you protect your business from theft?

Open Ended

You own a pizza shop. You suspect that one of your delivery people is charging customers more than what they actually owe and keeping the difference. How would you handle this situation?

Be Your Own Boss Assignment

You are the owner and manager of a diner located along a busy interstate highway. You do a good business with travelers passing through as well as locals who eat at your diner regularly. Recently, there have been several robberies during operating hours in nearby businesses. Your local customers are beginning to get a little nervous about coming to your diner. Outline a plan to minimize your risk of robbery. Include ways to make your customers feel safe.

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