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Risk Management

12. Risk Management. 12.1 Business Risks 12.2 Insure Against Risks 12.3 Other Risks. Ideas in Action. Growth is Risky. Scott Alterman has been involved with the development and growth of three companies. As growth occurred, Scott faced a variety of business risks including:

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Risk Management

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  1. 12 Risk Management 12.1 Business Risks 12.2 Insure Against Risks 12.3 Other Risks

  2. Ideas in Action Growth is Risky • Scott Alterman has been involved with the development and growth of three companies. • As growth occurred, Scott faced a variety of business risks including: • a loan for a new building • an expanded line of credit • extending credit to high risk customers Chapter 12

  3. Lesson 12.1Business Risks Goals • List and explain steps involved in preparing to face risks. • Discuss types of theft and security precautions to protect your business from each type. Chapter 12

  4. Terms • risk • risk management • risk assessment • shoplifting • bounced check Chapter 12

  5. Dealing with Business Risks • risk • the possibility of some type of loss • risk management • taking action to prevent or reduce the possibility of loss to your business Chapter 12

  6. Identifying Risks • human risks • caused by the actions of individuals • natural risks • caused by acts of nature • economic risks • occur because of changes in business conditions Chapter 12

  7. Preparing to Face Risks • Determine What Can Go Wrong • risk assessment • looking at all aspects of your business and determining the risks you face • Develop a Plan • chain of command information • the names of individuals who assess risk Chapter 12

  8. preferred method for reporting emergencies • specific instructions for how to shut down equipment prior to evacuation • facility evacuation procedures • specific training for emergency response personnel Chapter 12

  9. Communicate Your Plan • communicate plans to personnel • delegate responsibilities • Get Back to Business • recovery plan Chapter 12

  10. What should you do to prepare for business risks? Chapter 12

  11. Types of Theft • shoplifting • the act of knowingly taking items from a business without paying • Consumers shoplift millions of dollars in merchandise annually. Chapter 12

  12. Employee Theft • To deter theft, take the following precautions: • Do not hire dishonest employees. • Install surveillance systems. • Establish a tough company policy regarding theft. • Be on the lookout. Chapter 12

  13. Robbery • Robbery is a business risk. • dead-bolt locks • burglar alarms • surveillance cameras • Credit Card Fraud • electronic credit authorizer Chapter 12

  14. Bounced Checks • bounced check • a check returned to you by the bank because the customer’s account had insufficient funds to cover the check amount • prevention options • only in-state checks • customer fees for bounced checks • ask for identification • refuse to accept checks Chapter 12

  15. How can you protect your business from theft? Chapter 12

  16. Lesson 12.2Insure Against Risks Goals • Classify risks faced by business owners. • Explain why some business risks are uninsurable. • Determine the different types of insurance you need for your business. • Explain how to approach an insurance business. Chapter 12

  17. Terms • premium • pure risk • speculative risk • controllable risk • uncontrollable risk • insurable risk Chapter 12

  18. Classification of Risk • premium • a payment made to an insurance company to cover the cost of insurance • the price paid to cover a specified risk for a specific period of time Chapter 12

  19. Result of the Risk • pure risk • the chance of loss but no opportunity for gain • speculative risk • the chance to gain or lose from the event or activity Chapter 12

  20. Controllability of the Risk • controllable risk • a risk that can be reduced or avoided by actions you take • uncontrollable risk • a risk on which actions have no effect Chapter 12

  21. Insurability of the Risk • insurable risk • a pure risk faced by a large number of people • the amount of the loss is predictable • uninsurable risk • when there is a risk of loss • the amount of loss cannot be predicted Chapter 12

  22. What is the difference between a pure risk and a speculative risk? Chapter 12

  23. Uninsurable Risks • Economic Conditions • changes in competition • population shifts • inflation or recession • government regulations Chapter 12

  24. Consumer Demand • Businesses need to accurately predict consumer demand. • providing enough product to meet demand • avoiding excess inventory • Competitors’ Actions • Technology Changes • Local Factors • Business Operations Chapter 12

  25. Why are some risks uninsurable? Chapter 12

  26. Types of Insurance • Business Insurance • Business Owner’s Policy • Property Insurance • Business Interruption Insurance • Liability Protection • Life Insurance • Other Kinds of Insurance Chapter 12

  27. What types of insurance can you purchase for your business? Chapter 12

  28. Buy Insurance • Choose an Insurance Agent • compare prices and policies • choose an agent you trust • Determine How Much Coverage You Need • obtain sufficient insurance to cover loans • Agents receive commissions based on the value of policies they sell. • Be sure you actually need all of the insurance your agent recommends. Chapter 12

  29. How can you determine how much insurance you need? Chapter 12

  30. Lesson 12.3Other Risks Goals • Identify risks associated with credit. • Explain how to manage risks at work. • Describe strategies to reduce the risks of doing business internationally. Chapter 12

  31. Terms • trade credit • consumer credit • Federal Employees’ Compensation Act (FECA) Chapter 12

  32. Risks of Credit • Types of Credit • trade credit • when one business allows another business to buy now and pay later • often a higher price than the cash price • consumer credit • when a retail business allows its customers to buy merchandise now and pay for it later Chapter 12

  33. loans • secured loans • installment loans • unsecured loans • credit cards Chapter 12

  34. Credit Policies • Factors to consider when determining whether a customer is creditworthy include: • Previous credit history • Employment record • Assets owned • Money available for making payments • Financial references Chapter 12

  35. Uncollectible Accounts • an expense to the business • decreases net income Chapter 12

  36. How can a business owner reduce the risks of offering credit? Chapter 12

  37. Risks at Work • Federal Employees’ Compensation Act (FECA) • a law that provides benefits to employees who have suffered work-related injuries or occupational diseases • including benefits to dependents of an employee who dies from a work-related injury or disease Chapter 12

  38. Worker’s Compensation • Worker’s compensation usually provides coverage for: • medical bills • a percentage of lost wages • vocational retraining • death benefits for survivors Chapter 12

  39. Generally, the following injuries are not covered by workers’ compensation: • self-inflicted • suffered while under the influence of alcohol or illegal drugs • suffered during a fight that the injured employee started • suffered while disobeying orders • suffered while committing a crime • suffered while not on the job Chapter 12

  40. Filing a Claim • The injured employee must notify the employer. • The employee must follow doctor’s orders. • The employee must file the claim. Chapter 12

  41. What is the purpose of workers’ compensation insurance? Chapter 12

  42. Risks in International Business • collection of payments • currency of payments • differences in language • legal and cultural differences • product modifications might be required to meet needs of the new market • high travel and shipping expenses Chapter 12

  43. Strategies for Dealing With Global Risks • Seek government assistance to answer your questions about international business. • Conduct business in multiple countries. • Work with local business partners. • Employ local management. • Learn about the other country’s culture. Chapter 12

  44. What are some of the challenges of competing internationally? Chapter 12

  45. PERFORMANCE INDICATORS EVALUATED • Describe legal issues affecting businesses. • Describe the nature of legally binding contracts. Chapter 12

  46. Demonstrate responsible behavior. • Demonstrate honesty and integrity. • Explain business ethics in product/service management. Chapter 12

  47. THINK CRITICALLY • What is the conflict of interest in this case? • Why should Beautiful Spaces pay the city of Lincoln? • What compromise could the city propose to reduce the fines? • How can the city avoid this situation in the future? Chapter 12

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