Risk Management Identifying Risks Risk is the possibility

Risk Management

Identifying Risks Risk is the possibility of incurring a loss Even if you are careful, you cannot avoid all risk

Economic and Non-Economic Risks Economic risk-can result in financial loss 1. 2. 3. Personal risk-can result in personal losses such and health and personal wellbeing Property-can lead to loss to personal or business property including money, vehicles and land Liability risk-related to harm or injury to other people or their property because of your actions Non economic risk-may result in inconvenience or discomfort but do not have a financial impact Example: deciding to perform at a school talent show

Pure and Speculative Risk Pure risk-presents the chance of loss but no opportunity for gain Example: severe weather Speculative risk-offer the chance to either gain or lose Example: investing money in a new business

Controllable and Uncontrollable Risks Controllable risk-can be reduced or eliminated by actions you take Example: install security system to avoid theft Uncontrollable risks- cannot be reduced by your actions Example: sudden hail storm, or drought

Insurable and Uninsurable Risks Insurable risk-a risk a large number of people face and the cost of possible losses can be predicted Uninsurable risk-a risk that is not common of if it is impossible to predict them amount of loss that could be suffered

Dealing with Risks Avoid-choose not to complete the risky activity Transfer-find another business to complete the activity Insure-purchase insurance to pay for any losses Assume-complete the activity with full responsibility

Purchasing Insurance Most people and businesses cannot afford to pay for large economic losses They purchase insurance to provide financial protection they need in the event they suffer a financial loss Insurance exchanges uncertainty of a possible large financial loss for a certain smaller payment

Insurance Basics Insurer-the company who agrees to take on certain economic risks and to pay for losses if they occur Insured-person or business for which the insurer assumes the risk Policyholder-the company or person buying the policy Insurance policy-states the conditions to which the insurance company and the policyholder have agreed Premium-amount the policyholder must pay for insurance coverage Claim-policyholders request for payment for a loss that the insurance policy covers

Insurance Companies Insurance companies provide financial protection for policy holders and are investment companies Premiums from policy holders are used to pay for claims

Obtaining Insurance can be obtained in the following ways: Bought directly from an insurance company Provided as a benefit from employers Purchased through professional organizations and other groups offer

Insurance Agents Insurance agent-represents the insurance company and sells insurance policies to individuals and businesses One works from a large company and sells only policies written by that company Independent agency who may sell policies from a number o difference companies When purchasing insurance several quotes from different companies should be compared

Business Insurance-Personnel Health insurance-provides assistance with the high costs of individual health care Provides payments for the cost of medical care, hospitalization or other treatments Group insurance-coverers employees and their dependents Cheaper than purchasing a separate policy Disability insurance-provides payments t employees who are not able to work for an extended period due to serious illness or injury Workers compensation-system of insurance set up by state law that pays employees who are injured on the job Life insurance-pays the amount of the insurance policy upon the death of the insured Corporations often insure the lives of key executives or employees because their importance to the companies success

Business Insurance-Property Commercial interruption insurance-covers losses resulting from fire, storms, accidents, theft and vandalism Special policies can be purchased to provide coverage for hazards unique to a location or type of business Vehicle insurance-covers damages to vehicles and occupants resulting from accidents that are covered Also pays for damage to the property of others, and medical costs of the injured if the company employee caused the accident

Business Insurance-Operations Business Interruption Insurance-provides compensation for ongoing business expenses that occur if a business has a temporary shutdown due to a covered hazard Liability insurance-covers claims based on damages suffered because of business operations, employees, or products

Identifying and Managing Risks Business cannot insure many of the risk they face When a business cannot afford the cost of insurance or have an insurable risk they must determine other way s to deal with their situation

Uninsurable Risk Factors Economic conditions Consumer demand Competitors actions Technology changes Local factors Business operations

Managing Risks To manage risks businesses should: Make everyone in the business needs to be aware that there are many uninsurable risk Inform employees of the types of risks that are particularly important to their operation Implement measure to gather information and spot possible problems Inspect facilities and equipment Be active in their local communities

Risks in International Business Reducing risk internationally: Conduct business in many different countries Offer a wide range of products Involve local business partners in business decisions and activities Employ local management in key positions