Introduction to

Risk Management
ANNALYN MALLARI-CAYMO, LPT, MAED-EDMA
LECTURER
Lesson Objectives
Define Risk and Risk Management
List and Describe 3 Types of Risks
Know and Understand 4 Basic Ways to Handle and Control these Risks
List 3 types of Ways to Transfer Risks
Know the Difference Between Risk Avoidance and Risk Acceptance
 Risk Taking Behavior
Risk-Averse
Risk-Neutral
Risk-Taker (Risk-Seeker, Risk-Lover)
 Organization Definition of Risk
ISO Guide 73 Effect of uncertainty on objectives. Note
ISO 31000 that an effect may be positive, negative, or
a deviation from the expected. Also, risk is
often described by an event, a change in
circumstances or a consequence.

Institute of Risk Management (IRM) Risk is the combination of the probability

of an event and its consequence.
Consequences can range from positive to
negative.

Institute of Internal Auditors The uncertainty of an event occurring that

could have an impact on the achievement
of the objectives. Risk is measured in terms
of consequences and likelihood.
RISK MANAGEMENT

Risk management encompasses the

identification, analysis, and response to risk
factors that form part of the 
life of a business.
Why entrepreneurs need to
take risks?
1. You will no longer have to ask “what-if”?
2. You learn from taking risks
3. Innovation and opportunity are tied to risk
4. Those who take risks already have a
competitive advantage
5. Risk-takers may be more content and satisfied
with their lives
Kinds of Risks

Economic
Natural
Human
 Economic Risks
◦ These risks occur from changes in overall
business conditions.
◦ This can include:
◦ amount or type of competitor(s)
◦ changing consumer lifestyle
◦ population changes
◦ government regulations
◦ inflation
◦ recession
 Natural Risks
Natural risks are result from natural disasters or
disruptions
◦ floods
◦ tornadoes
◦ hurricanes
◦ fires
◦ droughts
◦ lightning
◦ earthquakes
◦ even sudden abnormal weather conditions
 Human Risks
These are caused by human mistakes and errors, as well as
the unpredictability of customers, employees, or the work
environment
This could include:
◦ Theft
◦ injury on the job
◦ bad checks
◦ employee error
◦ Negligence
◦ Incompetence
◦ etc.
 ENTREPRENEURIAL
RISKS
Financial risk
Strategic Risk
Technology Risk
Market Risk
Competitive Risk
Reputational Risk
Environmental, Political, and Economic Risk
 Categorizing Risk

Pure Risk vs. Speculative Risk

Diversifiable Risk vs. Nondiversifiable Risk
Fundamental Risks and Particular Risks
 Ways to Handle Business Risks
There are 4 principle ways to handle risks

◦Risk Prevention and Control

(Loss Prevention)
◦Risk Transfer
◦Risk Acceptance
◦Risk Avoidance
 Risk Prevention and Control
◦ Screening and Training Employees
◦ Providing Safe Conditions
◦ Providing Safety Instruction
◦ Preventing External Theft
◦ Deterring Employee Theft

◦ This is often called “Loss Prevention” in the business world

Risk Transfer
3 Common Risk Transfers
◦ insurance
◦ product/service warranties
◦ transference through business
ownership
 Insurance
◦ Insurance policy - contract that covers a business with a
specific type of insurance reducing risks
◦ Business liability - insurance protects a business against
damages for which it may be held legally liable, usually
up to only $1 million.
◦ Personal liability - covers damages by customer and/or
employees
◦ Product liability - protects from personal injury caused
by product manufactured or sold by the business
Product/Service Warranties

Warranties are simply

promises made by the
seller or manufacturer with
respect to the performance
and quality of a product
and protection against loss
 Transference Through Ownership

The total amount of risk the business

must handle depends in part on the type
of business ownership.
Risk Acceptance

When the business assumes the loss responsibility

into the upkeep of the company
Most companies pull out a certain percentage of
their revenue for damages, loss to theft, and unsold
items.
Risk Avoidance

Risks can be avoided by an advance anticipation

Following market research can assist a business in
making the decision on whether or not to invest in a
product.