Business Risk Concepts Flashcards
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Questions and Answers

What is the term for the possibility that a business may not succeed?

risk

What are the general classifications of business risks?

hazard, operational, strategic, and financial

A hurricane that destroys a business is an example of a(n) __________ risk.

hazard

A garden store customer tripped over a plant, fell, and sued the store for damages. This is an example of a(n) __________ risk.

<p>hazard</p> Signup and view all the answers

A union strike that stops production at a manufacturing plant is a(n) __________ risk.

<p>operational</p> Signup and view all the answers

What category of business risk includes production problems and incompetent employees?

<p>operational</p> Signup and view all the answers

When a rival's product on the market reduces sales of your company's product, what type of risk is this?

<p>strategic risk caused by competition</p> Signup and view all the answers

Financial loss from investing time and money to comply with accounting standards is an example of which strategic risk?

<p>regulatory and political issues</p> Signup and view all the answers

Which of the following is a pure business risk?

<p>robbery</p> Signup and view all the answers

Which of the following is an example of a business risk that cannot be covered by insurance?

<p>increase in interest rates</p> Signup and view all the answers

Management decides to hold its annual meeting in one U.S. city rather than another because of crime in that city. This is an example of __________ the risk.

<p>avoiding</p> Signup and view all the answers

Having well-planned buildings and providing effective employee training are ways that a business can __________ business risks.

<p>prevent or control</p> Signup and view all the answers

Carefully selecting goods or services to sell is an example of handling business risks by __________ the risk.

<p>preventing or controlling</p> Signup and view all the answers

Careful screening of credit customers is an example of handling business risks through?

<p>prevention</p> Signup and view all the answers

The act of reducing or removing risks by shifting the risk factor to another person or business is referred to as __________ risk.

<p>transferring</p> Signup and view all the answers

Contractual agreements such as guarantees, surety bonds, and leases are examples of business risks being handled through?

<p>transfer</p> Signup and view all the answers

Requiring a contractor to purchase a surety bond is an example of handling business risk by __________ the risk.

<p>transferring</p> Signup and view all the answers

Businesses can protect themselves from the risk associated with lost shipments by?

<p>purchasing transportation insurance</p> Signup and view all the answers

When a business keeps a risk because management is unaware of it, the business is _________ the risk.

<p>retaining</p> Signup and view all the answers

If a risk is small in terms of money, a business may decide to __________ the risk.

<p>retain</p> Signup and view all the answers

Study Notes

Business Risk Overview

  • Business risk refers to the potential for a business to fail.
  • Classifications of business risks include hazard, operational, strategic, and financial.

Types of Business Risks

  • Hazard Risk: Examples include natural disasters like hurricanes or accidents like customers tripping in stores.
  • Operational Risk: Involves issues like union strikes or production problems caused by poor employee performance.
  • Strategic Risk: Arises from competitive market actions affecting sales; influenced by the rival's products.
  • Financial Risk: Includes risks that cannot be insured, such as fluctuations in interest rates.

Managing Business Risks

  • Avoiding Risk: For example, choosing a safer location for annual meetings due to crime rates.
  • Preventing or Controlling Risk: Strategies include effective training and well-planned facilities.
  • Transferring Risk: Shifting risk via contracts, insurance, surety bonds, or guarantees to mitigate exposure.

Risk Handling Practices

  • Carefully selecting products involves preventing risk through informed decisions.
  • Screening credit customers is a preventive measure against financial risks.
  • Purchasing transportation insurance helps protect against losses from shipments.

Retaining Risk

  • A business may choose to keep a risk if it’s deemed minor or if management is unaware of its existence.

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Description

Test your knowledge on the various concepts of business risk with these flashcards. Learn about classifications such as hazard, operational, strategic, and financial risks. Understand the implications of these risks in real-world business scenarios.

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