Chapter 12 (1-2) Risk Management

Human Risk

Natural Risk

Economic 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. 

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

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.)

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)

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)