Risk
Management
for Business
Risk Management for
Business
What is Risk Management?
Risk The possibility of financial loss
Business risk
Possibility of business loss or failure
Risk Management
Systematic process of managing an
Types of Business Risk
Economic Risks
Risks that result from changes in overall
business conditions
Examples
Competition
Population changes
Inflation
Why is competition good
for consumers and for
Government Regulations
Laws and regulations can result in
economic results
Examples:
Special permits
Street improvements Environment clean-ups
Parking
Natural Risks
Risks that are caused by natural occurrences
Result in loss or damage of property and may
cause a business to be shut down for any length of time
Examples:
What are examples of how
natural occurrences can
Human Risks
Risks caused by human mistakes or
dishonesty, or other risks that can be controlled by humans
Examples
Robbery
Embezzlement
Customer Dishonesty
Loss caused by customer theft,
fraudulent payment, or nonpayment is a human risk
Higher prices to cover inventory
Employee Risks
Skills and Working
Environment
Instituted safety programs that stress
the importance of proper food handling
Customer or employee accidents are
potential human risks
Computer-Related Crime
Computer worms or viruses can be
downloaded inadvertently by employees and can wreak havoc on internal
computer networks and communications systems.
Breach the security of computer
Handling Business Risks
Ways of Handling Business
Risks
Four Basic Ways:
1. Risk prevention and control 2. Risk transfer
Risk Prevention and
Control
Screening and training employees
Providing safe working conditions and
sufficient safety instruction
Screening and Training
Employees
Best way to prevent human risk Background screening, checking
references, requiring driver licenses
Pre-employment tests Drug testing
Providing Safe Conditions and
Safety Instruction
2005 – 5,700 workplace deaths
2004 – 6.8 million disabling injuries Potential for on-the-job accidents is
Providing Safe Conditions and
Safety Instruction
Accident management programs:
Health & safety committee to check for hazards Correcting hazards before accidents
Complying with state and federal health &
safety regulations
Investigate & record all workplace
incidents/accidents
Provide employees with protective clothing &
equipment
Providing Safe Conditions and
Safety Instruction
Accident management programs:
Post address & phone number of nearby
hospitals
Employee classes in first aid & CPR
Track workdays missed due to accidents/injuries Schedule regular safety meetings/training
Prepare & distribute written safety & health
plans
Preventing Theft
On of the largest and most costly forms
of human risk
2004 – more than $33 billion every year Shoplifting – external theft that involves
stealing merchandise from a business
Fastest-growing crimes
Preventing Theft
Deter shoplifting:
Educate employees on prevention
guidelines
Adequately lighting
Lock expensive items
Tagging products
Preventing Theft
Apprehending shoplifters is risk
Sue for false arrest, false imprisonment,
malicious prosecution, excessive use of force, or physical assault
Know shoplifter detention policies and
Preventing Theft
Lower risk:
Limit amount of money on hand
Handle bank deposits discreetly
Video camera
Extra employees
Preventing Theft
Lower risk:
Bulletproof glass in cashier cubicles
Opening back doors only for freight or
trash
Switches that allow employees to lock
outside doors
Increase lighting inside & outside
Controlling Employee
Theft
48% of business losses due to theft
Most occurs at the point-of-sale (POS)
terminal
Prevent:
Closed-circuit television systems
Controlling Employee
Theft
Closed-circuit television systems
Cameras concealed in mannequins,
ceilings, or walls
Operated by security personnel in a
Controlling Employee
Theft
POS reports
Monitor void transfers, cash
discrepancies, sales reports, refunds by employees, employees’ discounts, and cash register transactions
Increase chances of apprehending
Controlling Employee
Theft
Standards on prosecuting dishonest
employees must be established
Keep employees aware of expectations Pre-employment psychological testing to
Risk Transfer
Transfer risk to other business or party Methods
Insurance
Product and service warranties
Purchasing Insurance
Contract between a business and an
insurance company to cover a specific business risk
Insurance company estimates the
Purchasing Insurance
Property insurance
Most common
Covers loss of or damage to buildings,
equipment, machinery, merchandise, furniture, and fixtures
Can be purchased for up to the full
replacement value
Extended to cover off-premise property,
Purchasing Insurance
Property insurance
Replacement Cost Coverage – reimburse
business owner for replacement cost of buildings and personal property
Automatic Increase Protection –
Purchasing Insurance
Property insurance
Business Interruption – compensates
Purchasing Insurance
Property insurance
Extended coverage – provides protection
against types of loss that may not be
covered under a basic property insurance policy
Examples:
Water leakage
Liability Insurance
Business liability insurance - Protects
business against damages for which it may be held legally liable, such as injury to
customer or damage to property of others
Primary – usually claims up to $1 million
May be extended to cover business
premises, company operations, customer medical expenses, and product and
Liability Insurance
Product liability insurance – Protects
against business losses resulting from personal injury or property damage
caused by product manufactured or sold by a business
Purchase to protect against potential
customer claims even though private labs and government agencies may have
Liability Insurance
Life Insurance – purchased to protect
the owners or managers of a business
Sole proprietor ( individual business
owner) – usually required to have life insurance in order to borrow money
Money to pay off debts and obligations
Provide money for other partners to
Liability Insurance
Credit insurance – protects a business
from losses on credit extended to customers
Pays off balance for loans granted banks,
Liability Insurance
Workers’ compensation insurance – covers employees who suffer job-related injuries and illness and protects employers from lawsuits filed by an employee injured on the job
States require employers that regularly employ a predetermined min # of
Product and Service
Warranties
Promises made by the manufacturer or
distributor with respect to the
Transferring Risks Through
Business Ownership
Partnerships enable the partners to
share in the business risks
Corporations allow the stockholders to
share the business risks
Risk Retention
Retain or assume financial responsibility
for the consequences of loss
Certain % of goods due to damage or
theft
Examples:
Customer trends change, merchandise is
Risk Avoidance
Business refuses to engage in a
particularly hazardous activity
Market research
Business decisions should be made with
