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Understanding Business

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CHAPTER C - Managing Risk Minimizing losses from unexpected events The management of risk is a major issue for businesses throughout the country - events involving loss mean a great deal to businesspeople - must pay to restore property and compensate those who are injured The risks of serious information security failures are manifold - threats are computer hackers, computer viruses and identity theft Thousands of other incidents involve businesspeople in lawsuits - job-related accidents to product liability ERM Enterprise Risk Management a program with well-defined goals: 1. defining which risks the program will manage 2. determining which risk management processes, technologies and investments will be required 3. how these efforts will be coordinated across the firm RAPID CHANGES Internet - world currencies - climate change - global warming - terrorist attacks - epidemics - riots - social unrest Risk the chance of, the degree of probability of, and the amount of possible loss Speculative Risk a chance of either profit or loss - the chance taken to make extra money buy purchasing or acquiring or making other decisions where the probability of loss may be relatively low and amount of loss is known Pure Risk the threat of loss with no chance for profit - threat of fire, accident or loss - the company loses money but if events don’t occur, the company gains nothing Once risks are identified, a company has several options to lower the need for outside insurance: 1. Reduce the risk: Establish low-prevention programs: fire drills, health education, safety inspections, equipment maintenance, accident prevention programs, etc Use of mirrors, surveillance cameras, etc to prevent shoplifting Machinery safety devices to protect the workers Product recalls Safety - seatbelts, earplugs, back braces 2. Avoid the risk: not accepting hazardous jobs - outsourcing shipping, etc drug companies don’t make certain vaccines engineers don’t work on hazardous sites many companies cut back on investments in early 2000 to minimize losses 3. Self-Insuring: Self Insurance
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