Podcast
Questions and Answers
What is business risk?
What is business risk?
- The possibility of loss or gain in business operations (correct)
- Only the potential for gain in business
- The risk of personal injury
- None of the above
What are hazard risks?
What are hazard risks?
- Events that can cause injury or harm (correct)
- Only financial risks
- Guaranteed business success
- None of the above
What are operational risks?
What are operational risks?
Possible events resulting from employee actions and daily business activities.
What are strategic risks?
What are strategic risks?
What are financial risks?
What are financial risks?
The best way to handle a risk is to avoid it.
The best way to handle a risk is to avoid it.
What does transferring risk mean in a business context?
What does transferring risk mean in a business context?
What happens when businesses retain a risk?
What happens when businesses retain a risk?
What are contractual agreements?
What are contractual agreements?
What are warranties?
What are warranties?
What are guarantees?
What are guarantees?
What are surety bonds?
What are surety bonds?
What are rental/lease agreements used for?
What are rental/lease agreements used for?
What is a sole proprietorship?
What is a sole proprietorship?
What is a partnership?
What is a partnership?
What defines a corporation?
What defines a corporation?
What is insurance in the context of risk management?
What is insurance in the context of risk management?
What types of property can be at risk in a business?
What types of property can be at risk in a business?
Why would a business need transportation insurance?
Why would a business need transportation insurance?
What do fidelity bonds protect against?
What do fidelity bonds protect against?
What does liability insurance cover?
What does liability insurance cover?
Study Notes
Business Risks
- Business risk involves the potential for loss or gain when conducting business activities.
- Distinction between types of risks: hazard, operational, strategic, and financial.
Hazard Risks
- Hazard risks are events that pose potential harm to individuals, property, or the environment.
- These risks typically result in losses rather than gains for businesses.
Operational Risks
- Operational risks arise from employee actions and daily business processes.
- They can disrupt normal business activities and impact efficiency.
Strategic Risks
- Strategic risks significantly affect a company's long-term objectives and require a broader view of the business environment.
- Managing these risks is crucial for sustained success.
Financial Risks
- Financial risks directly affect a company’s cash flow.
- Both external factors (market fluctuations) and internal factors (poor financial management) contribute to financial risks.
Risk Management Strategies
- Avoiding: Completely omitting the risk from the business process is the safest option.
- Preventing/Controlling: Implementing measures to minimize or manage identified risks.
- Transferring: Shifting risk to another party (e.g., through insurance).
- Retaining: Accepting the risk and not taking steps to mitigate it.
Contractual Agreements
- Contracts facilitate the transfer of risk between parties.
- Common types of agreements include guarantees/warranties, surety bonds, and rental/lease agreements.
Warranties and Guarantees
- Warranties involve promises to repair or replace defective products.
- Guarantees assure customers of a refund if products fail to meet expectations.
Surety Bonds
- Surety bonds protect against contractual breaches by ensuring compensation for losses incurred.
Rental/Lease Agreements
- Such agreements allow businesses to obtain equipment or premises without significant upfront costs, beneficial for startups.
Business Organization and Ownership Types
- The structure of a business (sole proprietorship, partnership, corporation) influences the risks owners face:
- Sole Proprietorship: The owner bears all business risks personally.
- Partnership: Partners share business risks collaboratively.
- Corporation: Shareholders limit their risk to their investment amount.
Insurance as a Risk Transfer Option
- Insurance is a common method for transferring risks, offering financial protection against various potential losses.
Property Risks
- Risks to property, including merchandise and equipment, can arise from theft or damage (e.g., fire).
Transportation Risks
- Businesses involved in shipping and storage may obtain transportation insurance for coverage during transit.
Robbery or Theft
- Fidelity bonds can protect businesses from employee theft, particularly for those handling valuable items.
Personal Injury Risks
- Liability insurance covers losses from accidents or injuries occurring on business premises, providing financial protection for such events.
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Description
Test your knowledge of business risk concepts with these flashcards. Learn about the different types of risks involved in business, including hazard and operational risks. Perfect for students and professionals looking to enhance their understanding of risk management.
