Intro to Business
March 26, 2004
Research Project: #5
Risk management is described- as "the process of evaluating the risks faced by a firm or an individual and then minimizing the costs involved with those risks (2001)". In other words, its how a business or an individual protects himself or herself from loss or injury that could occur. There are many types of risk management as there are many types of risks.
Risk avoidance is taking measure to avoid obvious risks. For instance, when a bank closes, employees lock up all currency in a secure vault to avoid losses in the instance of robbery. Unfortunately, not all risks can be prevented this easily.
Taking steps to minimize a risk that is unavoidable is called; risk reduction. Many companies use personal to analyze company procedures and then determine which risks can be reasonably reduced effectively.
An example of this would be to have random drug tests given to the employees to ensure that they are not under the influence of anything that would endanger them on the job.
Risk assumption means that a company accepts the fact that there are always going to be risks involved when running a business. In other words, a business takes responsibility for certain risks that occur because they understand that they cannot prevent everything. Generally, companies assume a risk when one or more of the following occur
1. The potential loss is too small to worry about at that time.
2. Effective risk management has reduced the risk.
3. Insurance coverage, if available, is too expensive.
4. There is no other way of protecting against a loss (2001).
Large firms often use a particular form of risk assumption, which is called, self-assurance. It is a very...