Risks in Business

1
Risks in Business

• Chapter 19

2
What is risk

• Risk is the possibility of loss or failure
• Three main types in business
• Economic
• Natural
• Human

3
Economic Risks

• Changes in the market that force a lowering of
  prices, change of products, or failure of
  business
• Competition
• Shifts in consumer demands
• Obsolescence
• Government intervention
• Business conditions

4
Economic risks

• Are the most difficult to predict and prevent

5
Natural Risks

• Those risks that result from natural causes
• Tornadoes
• Floods
• Earthquakes
• Lightning
• Fires

6
Human Risks

• Risks caused by human weakness and/or
  predictability
• Dishonesty
• Carelessness
• Incompetence
• Accidents/illness

7
Pure Risks

• Mean that there is a possibility of loss or no
  loss but not for gain.
• Possibility that one of your workers may wreck
  the company truck
• Insurance companies furnish insurance coverage
  for these risks.

8
Speculative Risks

• The risk may result in a loss, no change, or a
  gain
• You may risk some of your businesss profits on a
  new product idea. You may experience a loss,
  gain, or no change
• No insurance usually provide no insurance for
  this type of risk

9
Four Ways Businesses Handle Risks

• Preventing or Controlling
• Risk Transfer
• Risk Retained
• Risk Avoidance

10
Risk Management

• Reducing the risks associated with marketing
  decisions
• Some examples are?????

11
Risk Prevention and Control

• Safety
• Enough aisle space
• Safety training (OSHA)
• Safety lids
• Label warnings
• Fire extinguishers
• Slippery when wet signs

12
Burglary

• Security systems
• Dead bolt locks
• Cameras
• Security bars
• Security guards

13
Shoplifters

• Cameras
• Ink tags
• Security people
• Undercover employees
• Train employees to watch

14
Employee Incompetence

• Screen applicants well at initial interviews
• Effective training
• On-going evaluations

15
Product Selection

• Choose goods/services needed/wanted by customers
• Market research

16
Credit

• This is where businesses extend credit (extended
  payment terms
• Screen all applicants carefully
• Require proper identification
• Credit checks

17
Changes in local area

• Population trends area growing or decreasing in
  size (know the trends)
• Competition - Know when new competition comes
  into town and what they are offering

18
Weather Extremes

• Lightning rods
• Storm shelters
• Snow plows, ice melt

19
Risk Transfer

• Contractual Agreements
• Guarantees/Warranties
• Surety bond failure of person to do duty
  (housekeepers and theft)
• Rental or lease agreement

20
Risk Transfer

• Business Organization
• Sole proprietorship owner has all of the risk
• Partnership the risk is shared among partners
• Corporation Risk limited to investment in
  business

21
Transfer risks

• Insurance
• Property
• Vehicle
• Personal Injury
• Product liability

22
Why are some risks retained?

• Management unaware of risk
• Management underestimates risk
• Risk is small in monetary terms
• Chance of return or profit

23
Risk Avoidance

• Dont invest in risky ventures
• Dont offer products or services that are not a
  sure thing

24
Inventory shrinkage

• Difference between what the companys inventory
  records show and what is actually in stock

25
Ways employees cause inventory shrinkage

• Making personal use of company property
• Making recordkeeping errors
• Making selling mistakes
• Damaging goods and not reporting
• Making receiving mistakes
• Stealing goods from the company

26
Customers cause inventory shrinkage

• By shoplifting
• By breaking items

27
Vendors cause inventory shrinkage

• Delivering a short shipment
• Preparing inaccurate invoices
• Stealing
• Failing to give credit for returned goods

28
Marketing Mix Risks

• Product
• damage before sold or used (good packaging
• poorly designed products,
• deterioration (food is dated)
• Product liability for loss or damage

29
Distribution

• Safety of vehicles
• Safety of employees proper lifting
• Safety of goods protection against theft

30
Price

• Price for product must be a value
• Not price too high (lose sales)
• Not price too low (lose profit)

31
Promotion

• Effectively reach target market
• Information must be honest and accurate
• Other businesss misleading people about your
  products/services