Chapter 12

Risk Management
12.1 Business Risks
12.2 Insure Against Risks
12.3 Other Risks

Entrepreneurship: Ideas in Action 5e

© 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Lesson 12.1

Business Risks

Goals
 List and explain steps involved in
preparing to face risks.
 Discuss types of theft and security
precautions to take to protect your
business.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 2 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Vocabulary
 risk
 risk management
 risk assessment
 shoplifting
 bounced check

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 3 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 4 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 5 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Preparing to Face Risks
 When dealing with risk, choices you
have include
 avoid the risk
 assume the risk
 transfer the risk

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 6 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  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 Entrepreneurship: Ideas in Action 5e

Slide 7 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  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
 Develop a recovery plan.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 8 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Communicate Your Plan
 communicate plans to personnel
 delegate responsibilities

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 9 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 What should you do to prepare for
business risks?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 10 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 11 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  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 Entrepreneurship: Ideas in Action 5e

Slide 12 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Robbery
 Most businesses are vulnerable to
robberies.
 dead-bolt locks
 burglar alarms
 surveillance cameras
 Credit Card Fraud
 electronic credit authorizer

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 13 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Bounced Checks
 bounced check
 a check returned to a business by the bank
because the check writer’s checking account had
insufficient funds to cover the check amount
 prevention options
 accept only in-state checks
 charge customers a fee for bounced checks
 ask for identification
 refuse to accept checks

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 14 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 How can you protect your business
from theft?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 15 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Lesson 12.2

Insure Against Risks

Goals
 Identify 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
purchase.
Chapter 12 Entrepreneurship: Ideas in Action 5e
Slide 16 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Vocabulary
 premium
 pure risk
 speculative risk
 controllable risk
 uncontrollable risk
 insurable risk

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 17 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 18 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 19 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 20 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 21 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 What is the difference between a pure
risk and a speculative risk?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 22 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Uninsurable Risks
 Economic Conditions
 changes in competition
 population shifts
 inflation or recession
 government regulations
 world events

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 23 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Consumer Demand
 Competitors’ Actions
 Technology Changes
 Local Factors
 Business Operations

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 24 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Why are some risks uninsurable?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 25 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Types of Insurance
 Business Insurance
 business owner’s policy (BOP)
 Property insurance
 Business interruption insurance
 Liability protection
 Life Insurance
 Other Kinds of Insurance

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 26 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 What types of insurance can you
purchase for your business?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 27 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 property and
debts
 Agents receive commissions based on the value of
policies they sell.
 Be sure you actually need all of the insurance your agent
recommends by talking to other business owners.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 28 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 How can you determine how much
insurance you need?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 29 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Lesson 12.3

Other 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 Entrepreneurship: Ideas in Action 5e

Slide 30 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Vocabulary
 trade credit
 consumer credit
 Federal Employees’ Compensation Act
(FECA)
 exchange rate

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 31 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Risks of Credit
 Debtor-creditor relationships can be
 voluntary
 when a business extends credit to customers
 involuntary
 when the delivery driver of a small business is
at fault in a traffic accident
 the business may be required to provide
compensation to the injured person

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 32 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 1 Entrepreneurship: Ideas in Action 5e
Slide 33 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  loans
 secured loans
 installment loans
 unsecured loans
 credit cards
 the credit card company pays for the amount of
the purchase
 the business pays a fee to the credit card
company
 the credit card company is responsible for
collecting the money from the customer
Chapter 12 Entrepreneurship: Ideas in Action 5e
Slide 34 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Credit Policies
 Credit policies need to be established
to help reduce risks.
 A customer’s creditworthiness needs to
be established prior to being granted a
credit card.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 35 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  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 Entrepreneurship: Ideas in Action 5e

Slide 36 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Uncollectible Accounts
 an expense to the business
 decrease net income

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 37 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 How can a business owner reduce the
risks of offering credit?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 38 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Risks on the Job
 Many workplaces have risks.
 Any harm suffered by employees at the
workplace is considered to be a work-
related injury.

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 39 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Federal Employees’ Compensation
Act (FECA)
 a law that provides benefits to employees
who have suffered work-related injuries or
occupational diseases
 payment of medical expenses and
compensation for lost wages
 benefits to dependents of employees who die
from a work-related injury or disease

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 40 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 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 Entrepreneurship: Ideas in Action 5e

Slide 41 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Coverage provided by workers’
compensation includes:
 medical expenses for on the job injuries
 a percentage of lost wages
 if an employee is left permanently disabled,
either
 lump-sum payment or
 long-term benefits

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 42 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  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 Entrepreneurship: Ideas in Action 5e

Slide 43 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  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 Entrepreneurship: Ideas in Action 5e

Slide 44 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 What is the purpose of workers’
compensation insurance?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 45 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Risks in International Business
 differences in language
 legal and cultural differences
 Product modifications might be required
to meet the needs of global trade.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 46 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  different currency systems
 exchange rate
 the amount of one country’s currency that can
be traded for one unit of currency in another
country
 travel and shipping expenses may be
high

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 47 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Strategies for Dealing With
International Markets
 Seek government assistance to answer
your questions about international
business.
 Conduct business in multiple countries.
 Work with local business partners.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 48 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  Comply with international labor standards.
 Employ local management.
 Learn about the other country’s culture.

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 49 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 What are some of the challenges of
competing internationally?

Chapter 1 Entrepreneurship: Ideas in Action 5e

Slide 50 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
PERFORMANCE INDICATORS

 Describe legal issues affecting businesses

 Describe the nature of legally binding
contracts

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 51 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Demonstrate responsible behavior
 Demonstrate honesty and integrity
 Explain business ethics in product/service
management

Chapter 12 Entrepreneurship: Ideas in Action 5e

Slide 52 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 THINK CRITICALLY
1. What is the conflict of interest in this
case?
2. Why should Beautiful Spaces pay the
city of Lincoln?
3. What compromise could the city
propose to reduce the fines?
4. How can the city avoid this situation in
the future?
Chapter 12 Entrepreneurship: Ideas in Action 5e
Slide 53 © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.