Types of Risk
POBF 5.02
Risks
- A possibility of incurring a loss
-Ex: Failure to be skilled & have experience
Economic Risk
- Results in financial loss
- Ex: American Company invests 1,000,000 in a manufacturing plant, aside from the business risk it's making the plant profitable, then is exposed to econimic risk.
Non-Economic Risk
-May result in embarrassment or inconvenience without a financial impact.
-Ex: Black Market, Farmer consuming his crops, growing veggies in the backyard
Pure Risk
- Threat of a loss without an opprtunity for gain
- Ex: Earthquake hitting your house
Speculative Risk
-Offers the chance of gain and loss
-Ex: When you buy stock in the market , it could go up or down.
Controllable Risk
-Occurs when conditions can be controlled to lessen the chance of harm
-Ex: High blood pressure, High cholesterol, Tobacco & Alcohol use
Uncontrollable Risk
-Cannot be controlled or reduced by your actions
-Ex: Age, Gender, & Race
Insurable Risk
-Meets the criteria of an insurance company for coverage
-Ex: Fire insurance, storm, damage, & threat
Uninsurable Risk
-A hazard or condition that has either a high likelihood of loss
-Ex: Reputational risk, Regulatory risk, & trade secret
Ways that businesses manage risk
1) Avoid
2) Transfer
3) Insure
4) Assume