This document defines business risk as uncertainties that could lead to undesirable events impacting a business's performance. It describes two types of risk: internal risks that are within a company's control, like employee theft or accidents, and external risks outside a company's control, like natural disasters, competition, or changes in customer preferences. The document also discusses ways to manage risk, such as reducing risk through safety measures or shifting risk through insurance. It provides examples of property, personnel, and customer-related events that could pose risks to a business. Finally, it defines insurance and some principles of insurance contracts.

1. BBA R-2

2. Business risk
“Uncertainties which exist regarding the occurrence of
some undesirable or unfavorable event in the performance
of business”
“Probability that the future state of the business will
be less successful than planned”
Types of risk
 Internal risk
 External risk

3. Internal risk
 Damage to property/firm or employees
 Inefficiency on part of management
 Injury from accidents
 Dishonesty
 Labor strikes
 Theft
 Misbehavior from employees
 Poor internal organizational structure
 Increase cost of production

4. External risk
 Damage to factory by natural causes
 Floods
 Earthquakes
 Price reduction by competition businesses
 Impact on business by adverse legislative change
 Loss of external market
 Changing in habits of customer s
 Availability of low priced better substitute goods
 Change in technology

5. Managing risk
 Reducing or eliminating the risk
 Watchman
 Installation of alarm systems
 Fire extinguishers
 Efficient management
 Reserve cash
 Shifting of risk

6. Classification
Three general types of events that cause business risk:
1. Events related to the property of the business
2. Events related to personnel
3. Events related to customers and others

7. Event causing risk
1. Property of the business:
 Property involves specific forms of risk
 Inventory can be stolen, machinery can break
 Buildings can be damaged or destroyed
 Land may become contaminated
 Patents may be infringed upon
2. Events related to personnel:
 Theft, violation of government regulations, loss of key
employees

8. Event causing risk
3. Events related to customers and others:
 Risk from customers primarily arises from:
 Injuries suffered while upon business property
 Injury or damage that is caused during the use of the
business’s products
 Product liability: payments for injury or damage that
occurs during the use of the business’s products

9. Event causing risk
 Events related to customers and others: (cont.)
 Risk of nonpayment by customers is experienced by all
business that offer credit
 Balance two conflicting things when you decide to offer
credit:
 It will increase your sales
 Offering credit guarantees sooner or later some customer will
not pay as promised

10. Insurance
 Contract b/w two parties whereby one party agrees to
indemnify the loss suffered by the other party for a
consideration of some money called premium
 Insurance policy
 Insurance company
 Insurer
 Party subject to risk
 Insured

11. Types of insurance
 Life insurance
 Marine insurance
 Fire insurance

12. Principles of insurance
 Principle of insurable interest
 Principle of utmost good faith
 The indemnity principle
 Exception of life insurance
 Doctrine of contribution
 Doctrine of proximate cause

13. Advantages of insurance
 Provides security
 Optimum allocation of resources
 Provides basis for credit
 Loss prevention activities
 Stabilizer of organization
 Covers unforeseen accidents
 Encouraging international trade
 Provides employment across the board
 Spread of risk
 Affording peace of mind

14. End of Lesson!