Risk Management

Lesson #6

Lesson covers

How entrepreneurs • Recognize risk• Transfer or share risk

Insurance

Risk Loss

What risk have you faced to day

Types of risk that entrepreneurs might face(have students list)

Classification of risk (ask sites to define)

Pure Speculative

Controllable Uncontrollable

Insurable Uninsurable

Types of risk

• Pure: threat of a loss without an opportunity for gain• Speculative: uncertain outcome have the chance either to

gain or lose• Controllable: a risk you can avoid, reduce, or eliminate by

action you take• Uncontrollable: A risk that cannot be avoided or reduced by

your actions, risk is beyond human control• Insurable: meets criteria of an insurance company for

coverage • Uninsurable: not common nor easy to predict the amount of

loss; unacceptable to insurance companies because the likelihood of loss is to high

Use Visual #1 for activity• Divide class into 3 groups, large class divide into 6

groups or multiple of 3• Give each group one of the set of two risk

diamonds (i.e. pure and speculative)• I will display Visual 2 “What kind of risk am I”• Each group should decide which of their two risk

types the statement best reflects and hold up the risk diamond of their choice

• We will go to various site and discuss if the choice is correct

What kind of risk am I (from visual #1)

• Damage from a storm• Shoplifting• Competition from a similar business• Risk from cyber hacking• A person slips and falls on your property• A natural disaster strikes the area• Credit card fraud

What kind of risk am I (con’t)

• A worker does not do a job correctly• Increases in business regulation• Bounced checks• Employee theft• Change in customer demand

Methods for Controlling Riskask sites to define

Methods Whys to control Risk

AvoidReduceShiftAssume

Methods for controlling risk

• Avoid: Choose not to participate in risky activities

• Reduce: Find a way to reduce the change or amount of loss; find another company to do the task and assume the risk

• Shift: purchase insurance or find an individual to share the risk

• Assume: accept full responsibility; self-insure

Class activity # 1Avoid, Shift, Reduce, Assume

• Give each student one of the statements• Divide the room in to four areas, one for each of the

methods • Students should move to the area that best matches

their statement• Students in each group should discuss their

statements to make sure they have chosen correctly• Come back and ask different sites their choices for

each question.

The endThanks for you participation

Ask sites to define Insurance

Read Visual 4 and Visual 5

• Display visuals

With regard to Visuals # 4, 5

• Visual 4 Would the company have to have all of the types?

• Visual 5 Why would an company purchase these insurance

types

Activity 2What coverage should I have?

• Divide the class into groups of 3 or 4• Each groups should discuss the type of

business insurance that could be purchased in each of the three scenarios

• Poll each site for their answers

Juanita Jiminez thought she had found the perfect location for her new restaurant and catering business. She had found a restaurant for sale on a small bluff overlooking the river; the restaurant had a large tree-lined patio, so Juanita would be able to attract customers interested in outdoor dining. Juanita decided to talk to a former owner of the restaurant to get more information. The former owner told Juanita that his restaurant had flourished until two years ago, when the river flooded and caused extensive water damage. While he had made all of the necessary repairs to the restaurant, he was never able to recover financially, so he eventually went out of business. This concerned Juanita, and she wondered if her ideal spot was really ideal. In addition, the former owner informed Juanita that the city was located on a “fault” line and at the edge of “tornado” alley. What type of insurance should Juanita carry?

Congratulations! You just decided to go out on your own and open a medical practice to serve the needs of your small community. There are a thousand decisions to make to ensure that your business is successful, but one thing is for certain: you’re going to need to be insured. What type of insurance should you carry?

You run a small landscaping business employing approximately 50 people. You can’t seem to hold on to employees and one thing you keep hearing is that people are leaving your business for employers with better employee benefits. If you want to retain your employees, what type of insurance should you consider for your staff?

Activity # 3You be the Judge

• Divide class into 3 or 6 groups• Give each group one of the cases• Each group should answer the questions

found on page 106• Poll the sites for groups answers to each case

Activity #3 questions

• Who was responsible for the accident?

• Why do you think that party was responsible?

• Who do you think won the case?

• Did anyone receive a monetary payment as part of the verdict?

Thanks for your participation