Risk management Flashcards
A probability of threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal venerability
Risk
Possibility of losses associated with assets and earnings potential of a firm
Business risk
Uncertainty associated with an investment decision
Market risk
Uncertainty associated with a situation where only loss or no loss can occur
-No win situation
Pure risk
Process for identifying, assessing, and prioritizing certain kinds of events happening to or having an impact on a business intending to reduce or eliminate risk
-The goal of any business
Risk management
What are the types of risk to be considered?
- Property risk
- Liability risk
- Personal risk
- Financial risk
Property ownership = property risk
-Real property
-Personal property
Property risk
The cost to replace/ rebuild property at current prices
-cost to build
Replacement value
Depreciated value of property
-insurance terms
-book value
-tied to a location
Actual cash value (ACV)
Cause of loss either through natural events or through the actions of people
-Windstorms, earth quakes, flood, lightning
Peril
Direct vs indirect loss:
1. ___: physical damage
2. ___: inability to perform operations due to ___ loss
- Direct
- Indirect
Where does risk come in terms of liability risk?
- Statutes
- Contracts
- Torts
Liability risk from laws imposed
-Workers comp
Statutory liability
Liability risk from contracts
- ___: assumes financial consequences of another party’s legal liability
Contractual liability
-Indemnification clause
Liability risk that can arise due to injuries sustained because of the business
-Premises
-Operations
-Cars
-Employees
-Employment practices
-Professional services
Tort liability
Types of product liability:
1. Defect resulting from a problem that occurs during the manifesting process, causing the product to subsequently not be made according to specifications
2. A defect resulting from a dangerous design even though the product was made according to specifications
3. Defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use
- Manufacture defect
- Design defect
- Marketing defect
Risk that directly affects individual employees but may have an indirect impact on the business as well
-Premature death
-Poor employee health
-Insufficient retirement income
Personnel risk
What is the risk management processs?
Step 1. Identify and understand the risks
Step 2. Evaluate the potential severity of each risk
Step 3. Select methods to manage risks
Step 4. Implement the decision
Step 5. Review and evaluate
Minimizing the potential losses by preventing, avoiding, and reducing risk
Risk control
Methods of risk control:
Keeping loses from happening
Loss prevention
Methods of risk control:
Choosing not to engage in hazardous activities
-Ex. employee trainings
Loss avoidance
Methods of risk control:
Lessening the frequency, severity, or unpredictability of potential losses
Loss reduction
The equitable transfer of the risk of a loss, from one entity to another
-Primarily used to hedge against the risk of a contingent or uncertain loss
Insurance
What are the two types of insurance?
- Property and casualty (business)
- Life and health (people)
