Risk Management and Types of Risks

1. Risk Management and Types of Risks

2. Goals: • Define Risk and Risk Management • List and Describe 3 Types of Risks • Know and Understand 4 Basic Ways to Handle and Control these Risks • List 3 types of Ways to Transfer Risks • Know the Difference Between Risk Avoidance and Risk Acceptance

3. What is Risk Management? Risk - The possibility of financial loss Management - The business function used to plan, organize, and control all available resources to reach company goals Risk Management - The systematic process of managing an organization’s risk exposure to achieve objectives in a manner consistent with public interest, human safety, environmental factors, and the law.

4. Kinds of Risks 3 Types Economic Natural Human

5. Economic Risks • These risks occur from changes in overall business conditions. • This can include: • amount or type of competitor(s) • changing consumer lifestyle • population changes • government regulations • inflation • recession

6. Natural Risks Natural risks are result from natural disasters or disruptions • floods • tornadoes • hurricanes • fires • droughts • lightning • earthquakes • even sudden abnormal weather conditions

7. Human Risks These are caused by human mistakes and errors, as well as the unpredictability of customers, employees, or the work environment This could include: • Theft • injury on the job • bad checks • employee error • Negligence • Incompetence • etc. • THIS IS OUR MAIN CONCERN!

8. Ways to Handle Business Risks There are 4 principle ways to handle risks • Risk Prevention and Control (Loss Prevention) • Risk Transfer • Risk Acceptance • Risk Avoidance

9. Risk Prevention and Control • Screening and Training Employees • Providing Safe Conditions • Providing Safety Instruction • Preventing External Theft • Deterring Employee Theft • This is often called “Loss Prevention” in the business world

10. Risk Transfer 3 Common Risk Transfers • insurance • product/service warranties • transference through business ownership

11. Insurance • Insurance policy - contract that covers a business with a specific type of insurance reducing risks • Business liability - insurance protects a business against damages for which it may be held legally liable, usually up to only $1 million. • Personal liability - covers damages by customer and/or employees • Product liability - protects from personal injury caused by product manufactured or sold by the business

12. Product/Service Warranties • Warranties are simply promises made by the seller or manufacturer with respect to the performance and quality of a product and protection against loss

13. Risk Acceptance • When the business assumes the loss responsibility into the upkeep of the company • Most companies pull out a certain percentage of their revenue for damages, loss to theft, and unsold items.

14. Risk Avoidance • Risks can be avoided by advance anticipation • Following market research can assist a business in making the decision on whether or not to invest in a product. • To determine whether the product is a low risk you must weigh the potential benefits against the potential risks

15. Risk Management Plan • Develop an overall Risk Management Plan for the business • Develop a specific Risk Management Plan for specific events that occur within the business • Revisit the plan regularly to update • A plan to analyze the risk the business faces and how the business can manage those risks through risk control and prevention, risk transfer, risk acceptance, and risk avoidance. The plan should be written down and shared with management because they can affect how they do their practices.