Chapter Bonus C – Managing Risk
1. The management of risk is a small part of global business.
2. An enterprise risk management (ERM) program has a goal of defining which risks the
program will manage.
3. Companies adopt risk management procedures to minimize the chance of business failure
due to unplanned events such as security breaches, terrorist attacks, and natural disasters.
4. Risk management involves minimizing the losses from unexpected events.
5. Risk management is getting much simpler thanks to the Internet.
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6. Southern Deliveries has decided to manage risk by requiring drivers to wear seat belts,
have a commercial driver’s license, monitor any moving violations each driver obtains,
and to be sure that this information is kept in the employee records. Furthermore
Southern has decided to carry an insurance policy with a very large deductible, preferring
to pay for small damages to its trucks out-of-pocket. Southern has built enterprise risk
management into their organization.
Feedback: Enterprise risk management usually has a few well-defined goals, such as (1)
defining which risks the program will manage; (2) what risk management processes,
technologies, and investments will be required; and (3) how these efforts will be coordinated
across the firm.
7. Fairweather Farms is located on Florida’s Gulf Coast and is primarily engaged in raising
and harvesting citrus fruit. The owners of Fairweather Farms are correct in beginning to
think about how the risk of climate change might impact their crops in the future.
Feedback: Risk management is getting more complex and more critical for all businesses,
including farmers.
8.
Chapter Bonus C – Managing Risk
Risk is a term that refers to the chance of loss, the degree of probability of loss, and the
amount of possible loss.
9. There are two different kinds of risk: passive and active.
10. Speculative risk involves a chance of either profit or loss.
11. Pure risk involves the chance of either a profit or a loss.
12. An entrepreneur takes a speculative risk when starting a new business.
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55. Cary owns a life insurance policy on her husband Jay through Mutual of Cincinnati Life
Insurance Company. As a policyholder, she also owns part of the company.
Feedback: A mutual insurance company is owned by its policyholders.
56. Property insurance covers losses from fires, accidents, or theft.
57. Liability losses result from property damage or injuries suffered by others for which the
policyholder is held responsible.
58. Typically, Health Maintenance Organizations (HMOs) offer members more flexibility in
the choice of doctors and health care than other forms of health insurance providers.
59.
Chapter Bonus C – Managing Risk
Health maintenance organizations put an emphasis on helping members stay healthy
instead of on treating illnesses.
60. A managed care HMO system is more expensive than comprehensive health insurance
providers.
61. To save money, HMOs usually must approve treatment before it is given.
62. Preferred Provider Organizations (PPOs) offer medical care that is usually more
expensive than HMOs.
63. Preferred Provider Organizations (PPOs) offer members the opportunity to choose their
own physicians.
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64. One advantage of health savings accounts is that healthy people can use tax-deferred
money to save for their future medical needs.
65. Health savings accounts are managed care plans that have a high deductible.
66. The chances of dying when young are much higher than the chances of becoming
disabled when young.
67. Disability insurance replaces part of your income if you become disabled and can no
longer work, but you usually must be disabled for a specified period of time before
benefits are provided.
68.
Chapter Bonus C – Managing Risk
Workers’ compensation insurance guarantees payment of wages, medical care, and
rehabilitation services for employees who are injured on the job.
69. The premium charged for workers’ compensation insurance is the same for all workers,
regardless of their occupation.
70. Workers’ compensation insurance is required in all states except Louisiana.
71. Professional liability insurance is also sometimes known as malpractice insurance.
72. Product liability insurance covers liability arising out of defective products sold.
