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ASSESSING RISK

ASSESSING RISK. RISK - THE POSSIBILITY THAT SOME LOSS MIGHT OCCUR. WHAT ARE THE CAUSES OF RISK? WHAT ARE THE EFFECTS OF RISK ON THE BUSINESS? HOW CAN WE CONTROL RISK?. SOURCES OF RISK. PRODUCTION AND YIELD MARKET AND PRICE BUSINESS AND FINANCIAL TECHNOLOGY AND OBSOLESCENCE

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ASSESSING RISK

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  1. ASSESSING RISK • RISK - THE POSSIBILITY THAT SOME LOSS MIGHT OCCUR. • WHAT ARE THE CAUSES OF RISK? • WHAT ARE THE EFFECTS OF RISK ON THE BUSINESS? • HOW CAN WE CONTROL RISK?

  2. SOURCES OF RISK • PRODUCTION AND YIELD • MARKET AND PRICE • BUSINESS AND FINANCIAL • TECHNOLOGY AND OBSOLESCENCE • CASUALTY LOSS • SOCIAL AND LEGAL • HUMAN

  3. PRODUCTION AND YIELD RISK VARIABILITY IN YIELDS AND PRODUCTION CAUSED BY FACTORS SUCH AS WEATHER, DISEASE, PESTS, GENETIC VARIATION, AND TIMING OF PRACTICES. • MARKET AND PRICE RISK VARIABILITY AND UNPREDICTABILITY OF PRICES

  4. BUSINESS RISK SOURCES OF BUSINESS RISK ARE YIELD, OUTPUT PRICE, AND INPUT PRICES. BUSINESS RISK IS ASSOCIATED WITH CHARACTERISTICS OF THE BUSINESS. • FINANCIAL RISK THE RISK ASSOCIATED WITH FINANCING, MEETING FIXED FINANCIAL OBLIGATIONS.

  5. TECHNOLOGY AND OBSOLESCENCE RISK. NEW TECHNOLOGY CAN MAKE CURRENT METHODS OBSOLETE. • CASUALTY LOSS LOSS OF ASSETS DUE TO FIRE, WIND, HALE, FLOOD, AND THEFT. • SOCIAL AND LEGAL RISK GOVERNMENT PROGRAMS AND REGULATIONS

  6. HUMAN RISK THE CHARACTER, HEALTH, AND BEHAVIOR OF INDIVIDUALS.

  7. RISK-RATED MANAGEMENT STRATEGIES • RISK-RATED MANAGEMENT STRATEGIES START WITH THE ASSIGNMENT OF PROBABILISTIC OUTCOMES. • EXAMPLE: BEST, OPTIMISTIC, EXPECTED, PESSIMISTIC, AND WORST. • THE EXPECTED OUTCOME IS THE ONE MOST LIKELY TO OCCUR. MOST LIKELY PRICE, YIELD, AND COSTS. • A SERIES OF CASH FLOW BUDGETS MAY BE PREPARED TO ASSES THE IMPACTS OF THE POSSIBLE OUTCOMES.

  8. RISK MANAGEMENT RULES OF THUMB 1. THERE ARE NO CERTAIN PROFITS 2. HIGHER PROFITS TEND TO BE ASSOCIATED WITH HIGHER RISKS OF LOSS 3. THERE IS NO “BEST” STRATEGY 4. GOOD STRATEGIES IMPROVE THE ODDS OR CHANCE FOR SUCCESS

  9. 5. DECISIONS SHOULD BE EVALUATED WITH RESPECT TO OBJECTIVES - NOT HINDSIGHT 6. GOOD DECISIONS SOMETIMES HAVE BAD OUTCOMES 7. GOOD STRATEGIES, OVER TIME, WILL PRODUCE GOOD RESULTS

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