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Risk Management

Risk Management. Marketing Chapter 34. What is Business Risk. The primary goal of every business is to make a profit There is no guarantee this will happen The possibility of financial loss is known as Business Risk. What is Risk Management.

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Risk Management

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  1. Risk Management Marketing Chapter 34

  2. What is Business Risk • The primary goal of every business is to make a profit • There is no guarantee this will happen • The possibility of financial loss is known as Business Risk

  3. What is Risk Management • The systematic process of managing an organization’s risks to achieve objectives in a manner consistent with public interest, human safety, environmental needs, and the law

  4. Types of Business Risk • Economic Risk – result from changes in overall business conditions • Natural Risk – changes caused by natural occurrences • Human Risk – changes caused by employee dishonesty, errors, mistakes, or omissions as well as the unpredictability of customers or the workplace itself

  5. Economic Risk • Changes include: • The level or type of competition • Changing consumer lifestyle • Population changes • Inflation • Recession • Limited usefulness or style of product • Product obsolescence • Government regulation

  6. Economic Risk • Competition • Failure to keep up with competition leads to lost sales • New foreign completion threatens business • Products can be produced cheaper over seas

  7. Economic Risk • Consumer lifestyle and population change • Must adapt to changing want and needs of the consumer • A change in population could mean an increase or a decrease in potential consumers • New communities (Ashburn) • Aging communities (rural towns)

  8. Economic Risk • Limited Usefulness and Product Obsolescence • Products inevitably become outdated • VCRs • Atari • Cassette tapes • New products are always being developed • The development of more advanced products makes older ones no longer useful • Film cameras, typewriters, VCRs, portable stereo

  9. Economic Risk • Recession and Inflation • Businesses in areas with high unemployment will suffer because less people are spending • If prices for basic products rise, people will have less disposable income

  10. Economic Risk • Government Laws and Regulations reduce overall profits • Special licenses and permits • Street and Sewer Improvements • Environmental Clean-up • Parking • Product Recalls

  11. Natural Risk • Results in the loss or damage of property and may cause businesses to be shut down. Catastrophes such as: • Floods • Tornados • Hurricanes • Fires • Lightning • Drought • Earthquakes

  12. Natural Risk • Sometimes natural risks are caused by people: • Power outages • Civil unrest • Oil spills • Arson • Terrorism • War

  13. Natural Risk • Businesses can insure against unexpected losses from some natural risks, but not all • Business insurance typically doesn’t cover acts of war or riot • Special insurance is often needed to cover flood and earthquake damage

  14. Natural Risk • Weather is an important natural risk to consider • Some businesses and products depend on predictable weather conditions for success • Ski resorts rely on snow fall • Beach resorts affected by hurricanes • Farmers require sufficient rainfall

  15. Human Risk • Range from the financial impact of robbery or embezzlement to job related illness or injury • Customer Dishonesty: • Customer Theft • NRF determined that retailers lose $15-$37 billion a year from shoplifters • Fraudulent Payment • Nonpayment of accounts

  16. Human Risk • Employee Risk: • Unethical business practices • Embezzlement • Misuse of company goods, resources or supplies • Misuse of company time

  17. Human Risk • Computer-Related Crime • Worms or viruses downloaded by employees accidently • Hackers or employees can penetrate secure networks and access proprietary company information or client lists • Training employees on privacy policies and the proper handling of confidential information is necessary to decrease risk

  18. Handling Business Risk • There are 4basic ways to handle business risk • Risk Prevention and Control • Risk Transfer • Risk Retention • Risk Avoidance

  19. Risk Prevention and Control • Some business risks can be controlled or minimized by: • Screening and Training Employees • Providing Safe Conditions and Safety Instruction • Preventing External Theft • Deterring Employee Theft

  20. Risk Prevention and Control • Screening Employees • Background Checks/Reference Checks • Pre-employment Tests • Drug Testing • Training Employees • Orientation, training and instruction to understand policies and procedures

  21. Risk Prevention and Control • Providing Safe Conditions and Safety Instructions • Design safe employee work zone for traffic and storage • Training on proper ways to lift and store merchandise • Develop accident management programs • Check and correct hazards • Ensure compliance with state and federal regulations • First aid kits near workstations • Distribute written safety and health plans

  22. Risk Prevention and Control • Preventing Theft • Largest and most common form of human risk • Lock up valuable merchandise • Adequate lighting • Tag products with anti-theft devices • Hire security personnel and install security devices

  23. Risk Prevention and Control • Preventing Theft • Robbery: stealing of money or merchandise by violence or threat • Keep limited amounts of money on hand • Hire security guards • Set alarms and lock doors

  24. Controlling Employee Theft • Employee theft represents 48% of all business losses due to theft • Prevention: • Closed circuit television • Cameras concealed in mannequins, ceilings or walls • POS terminals (generates computer reports) • Monitors voids, cash intake, sales and refunds

  25. Risk Transfer • Transferring the risk of loss to another business or party • Purchasing Insurance • Property Insurance – to protect buildings, equipment and machinery • Liability Insurance – to protect company from damages which they can be held legal responsible • Establishing Product Warranty Periods

  26. Risk Retention • When a business retains, or assumes, the financial responsibility for the consequences of loss • Unsold merchandise after a change in trends • Damaged items returned or removed from the sales floor

  27. Risk Avoidance • When a business refuses to engage in particularly hazardous activity • Can often be determined by market research • Is an investment/activity worth the risk

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