Factors Effecting Profit

1. Factors Effecting Profit Economics Unit Targets I and J

2. Risking It All • Risk • Possibility of financial gain or loss or personal injury • Businesses that do not profit must close • Personal injury can occur if businesses do not take the appropriate safety precautions • Businesses must consider: • Natural risk • Human risk • Economic risk

3. Natural Risk • Weather conditions that cannot be avoided • Tornadoes • Blizzards • Hurricanes • Floods • Droughts • Ice Storms • Less catastrophic weather conditions can cause problems • Heavy thunderstorms • Dangerous lightening

4. Human Risk • Customer dishonesty • Employee theft/dishonesty • Employee incompetence • Poor attitudes • Poorly trained • Shoplifting • Credit card fraud • Bad checks • How do businesses attempt to manage these types of risks?

5. Economic Risk • Economic conditions • Consumer lifestyles • Individual purchases • Discretionary income • Demand • Recalled products • Research to find a recent recall. What effect did the recall have on the business and the consumer?

6. Gain or Loss risk • Gain example • A sports team is very successful and attracts many fans • Investors make a great deal of profit • Loss example • A flood closes a golf resort • Investors cannot possibly gain from the event • Speculative risk could result in either a gain or a loss as in the sports team example • Pure risk occurs when there is no chance of a gain

7. Controllable Risk • Prevent or reduce the occurrence of the risk • Business has adequate safety measures in place • Employees are well-trained in safety procedures • Uncontrollable Risk • Natural disasters • Think of a place you visit often and name some safety procedures that business has in place. Can you think of any way to improve their safety?

8. Insurable Risk • Pure risk for which the chances of loss are predictable and the amount of the loss can be estimated • Fire • Earthquake • Flood • Theft • Injury • Workers’ Compensation • Uninsurable risk occurs when there is a chance that a loss could occur, but the dollar amount cannot be estimated

9. Managing Risk • Risk management • Preventing, reducing, or lessening the negative impacts of risk by using one of these strategies: • Risk Avoidance • Comply with safety laws • Background checks on employees • Safety training • Video surveillance • Security guards • Controlled access • Warning signs

10. Managing Risk, con’t. • Risk Insurance • Predictable losses • Property • Liability • Theft • The premiums from many businesses are pooled to and used to pay the losses that a few businesses experience.

11. Managing Risk, con’t. • Risk Retention • Uninsurable risks • Breakdown of equipment • Low demand • Bad economy • Products that won’t sell • Owners realize that there are uncontrollable circumstances that can negatively impact the business • Businesses must set aside funds for use in these circumstances