Comment your opinion about this post: Risk is a part of life and business. Business risk is an event or circumstance lea
Posted: Wed May 04, 2022 7:56 am
Comment your opinion about this post:
Risk is a part of life and business. Business risk is an
event or circumstance leading to the possibility of losses related
to the assets and the profits potential of a firm. A company must
protect itself against risks by identifying factors and taking the
necessary steps to avoid issues that contribute to business
failure. Being proactive in managing these risks makes a massive
difference to the success of one’s company. According to
Longenecker et al. (2020), “That’s why an understanding of business
risks, the basic principles of a sound insurance program, and the
various types of business insurance is so important.” (p. 532).
Understanding these risks is essential in assisting a business
owner when dealing with the various qualms that a business
encounters. There are two categories of business risks: market
risk and pure risk. Market risk is the uncertainty associated with
any investment decision. For example, investing in the stock market
can result in loss or gain. This type of risk is uninsurable. On
the other hand, pure risk can be insured, involves the possibility
of a loss or no loss, and there is no potential gain. Insuring a
vehicle is an example of pure risk. The different types of
risk include property risks, liability risks, and personnel risks.
Property risks involve potential damage to, destruction, or loss of
real property, like land and buildings, and personal property such
as machinery, equipment, furniture, and vehicles, to name a few.
Liability risks arise from statutory liability, contractual
liability, or tort liability. They come about when a business or
any of its representatives violate laws that cause damage to the
affected party. Personnel risks, such as premature death, poor
health, inability to work, and insufficient retirement income,
directly affect individual employees and indirectly impact the
business. The ways to manage risk in a business are risk
control and risk financing. Risk control minimizes loss through
prevention, avoiding hazardous activities, and reducing risk. Risk
financing makes funds available for losses that will not be
eliminated through risk control. Risk financing involves
transferring risk to another party; through purchasing insurance,
or retaining the risk within the firm by financing loss through
cash flows.
Risk is a part of life and business. Business risk is an
event or circumstance leading to the possibility of losses related
to the assets and the profits potential of a firm. A company must
protect itself against risks by identifying factors and taking the
necessary steps to avoid issues that contribute to business
failure. Being proactive in managing these risks makes a massive
difference to the success of one’s company. According to
Longenecker et al. (2020), “That’s why an understanding of business
risks, the basic principles of a sound insurance program, and the
various types of business insurance is so important.” (p. 532).
Understanding these risks is essential in assisting a business
owner when dealing with the various qualms that a business
encounters. There are two categories of business risks: market
risk and pure risk. Market risk is the uncertainty associated with
any investment decision. For example, investing in the stock market
can result in loss or gain. This type of risk is uninsurable. On
the other hand, pure risk can be insured, involves the possibility
of a loss or no loss, and there is no potential gain. Insuring a
vehicle is an example of pure risk. The different types of
risk include property risks, liability risks, and personnel risks.
Property risks involve potential damage to, destruction, or loss of
real property, like land and buildings, and personal property such
as machinery, equipment, furniture, and vehicles, to name a few.
Liability risks arise from statutory liability, contractual
liability, or tort liability. They come about when a business or
any of its representatives violate laws that cause damage to the
affected party. Personnel risks, such as premature death, poor
health, inability to work, and insufficient retirement income,
directly affect individual employees and indirectly impact the
business. The ways to manage risk in a business are risk
control and risk financing. Risk control minimizes loss through
prevention, avoiding hazardous activities, and reducing risk. Risk
financing makes funds available for losses that will not be
eliminated through risk control. Risk financing involves
transferring risk to another party; through purchasing insurance,
or retaining the risk within the firm by financing loss through
cash flows.