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Risk Managemen
t
MarketingChapter 34
What is Business Risk
O The primary goal of every
business is to make a profit
O There is no guarantee this will
happen
O The possibility of financial loss is
known as Business Risk
What is Risk Management
O The systematic process
of managing an
organization’s risks to
achieve objectives in a
manner consistent with
public interest, human
safety, environmental
needs, and the law
Types of Business Risk
O Economic Risk – result from changes in
overall business conditions
O Natural Risk – changes caused by natural
occurrences
O Human Risk – changes caused by
employee dishonesty, errors, mistakes, or
omissions as well as the unpredictability of
customers or the workplace itself
Economic RiskO Changes include:
O The level or type of
competition
O Changing consumer
lifestyle
O Population changes
O Inflation
O Recession
O Limited usefulness
or style of product
O Product
obsolescence
O Government
regulation
Economic RiskO Competition
O Failure to keep up with
competition leads to lost sales
O New foreign completion
threatens business
O Products can be produced
cheaper over seas
Economic RiskO Consumer lifestyle and population
change
O Must adapt to changing want and
needs of the consumer
O A change in population could mean an
increase or a decrease in potential
consumers
O New communities (Ashburn)
O Aging communities (rural towns)
Economic RiskO Limited Usefulness and Product Obsolescence
O Products inevitably become outdated
O VCRs
O Atari
O Cassette tapes
O New products are always being developed
O The development of more advanced products
makes older ones no longer useful
O Film cameras, typewriters, VCRs, portable stereo
Economic RiskO Recession and Inflation
O Businesses in areas with
high unemployment will
suffer because less
people are spending
O If prices for basic products
rise, people will have less
disposable income
Economic RiskO Government Laws and Regulations
reduce overall profits
O Special licenses and permits
O Street and Sewer Improvements
O Environmental Clean-up
O Parking
O Product Recalls
Natural RiskO Results in the loss or damage of property
and may cause businesses to be shut down.
Catastrophes such as:OFloodsOTornadosOHurricanesOFiresOLightningODroughtOEarthquakes
Natural Risk
O Sometimes natural risks
are caused by people:
O Power outages
O Civil unrest
O Oil spills
O Arson
O Terrorism
O War
Natural Risk
O Businesses can insure against
unexpected losses from some
natural risks, but not all
O Business insurance typically doesn’t
cover acts of war or riot
O Special insurance is often needed to
cover flood and earthquake damage
Natural RiskO Weather is an important natural
risk to consider
O Some businesses and products
depend on predictable weather
conditions for success
O Ski resorts rely on snow fall
O Beach resorts affected by
hurricanes
O Farmers require sufficient rainfall
Human RiskO Range from the financial impact of
robbery or embezzlement to job related illness or injury
O Customer Dishonesty:O Customer Theft
O NRF determined that retailers lose $15-$37 billion a year from shoplifters
O Fraudulent PaymentO Nonpayment of accounts
Human Risk
O Employee Risk:
O Unethical business
practices
O Embezzlement
O Misuse of company
goods, resources or
supplies
O Misuse of company time
Human RiskO Computer-Related Crime
O Worms or viruses downloaded by
employees accidently
O Hackers or employees can penetrate
secure networks and access proprietary
company information or client lists
O Training employees on privacy policies
and the proper handling of confidential
information is necessary to decrease risk
Handling Business Risk
O There are 4 basic ways to
handle business risk
O Risk Prevention and Control
O Risk Transfer
O Risk Retention
O Risk Avoidance
Risk Prevention and Control
O Some business risks can be
controlled or minimized by:
O Screening and Training
Employees
O Providing Safe Conditions
and Safety Instruction
O Preventing External Theft
O Deterring Employee Theft
Risk Prevention and Control
O Screening Employees
O Background Checks/Reference
Checks
O Pre-employment Tests
O Drug Testing
O Training Employees
O Orientation, training and
instruction to understand
policies and procedures
Risk Prevention and Control
O Providing Safe Conditions and Safety Instructions
O Design safe employee work zone for traffic and
storage
O Training on proper ways to lift and store
merchandise
O Develop accident management programs
O Check and correct hazards
O Ensure compliance with state and federal regulations
O First aid kits near workstations
O Distribute written safety and health plans
Risk Prevention and Control
O Preventing Theft
O Largest and most common form of
human risk
O Lock up valuable merchandise
O Adequate lighting
O Tag products with anti-theft devices
O Hire security personnel and install
security devices
Risk Prevention and Control
O Preventing Theft
O Robbery: stealing of money or
merchandise by violence or
threat
O Keep limited amounts of money
on hand
O Hire security guards
O Set alarms and lock doors
Controlling Employee Theft
O Employee theft represents 48% of all
business losses due to theft
O Prevention:
O Closed circuit television
O Cameras concealed in mannequins, ceilings
or walls
O POS terminals (generates computer reports)
O Monitors voids, cash intake, sales and refunds
Risk TransferO Transferring the risk of loss to another
business or party
O Purchasing Insurance
O Property Insurance – to protect buildings,
equipment and machinery
O Liability Insurance – to protect company
from damages which they can be held
legal responsible
O Establishing Product Warranty Periods
Risk Retention
O When a business retains, or
assumes, the financial responsibility
for the consequences of loss
O Unsold merchandise after a change in
trends
O Damaged items returned or removed
from the sales floor
Risk Avoidance
O When a business refuses to engage
in particularly hazardous activity
O Can often be determined by market
research
O Is an investment/activity worth the
risk
