Types of Risk

Introduction

The intent of this paper is to analyze the four types of risks (property, market, employee, and consumer) that business owners’ face and discuss possible solutions to mitigate those risks. It is important to note that the concepts discussed in this week’s video clip stand to be the foundation for the information discussed in this paper. However, in order to illustrate these concepts this paper will include examples of actual business practices where risk identification and risk mitigations have been used.

Prior to going into real world business examples, it is first important to understand what risk and risk management mean. In the simplest terms, risk is a hazard or a dangerous chance that can result in a loss. To put this into a business perspective, the Committee of Sponsoring Organizations of the Treadway commission (COSO) defines risk as “any event that can keep an organization from achieving its objectives.” (COSO, 2004) As for risk management, the Macquarie Dictionary defines this as “the devising of procedures, strategies, etc., which seek to minimize risk, such as risk of injury in a workplace, risk of financial loss in stock trading, etc.” (Risk management, 2005)

Property Risk

The first of the four risk types that is discussed in this paper is property risk. According to the Merriam-Webster's Collegiate(R) Dictionary, property is defined as “something owned or possessed; specif : a piece of real estate” (property, 2012) With that said, we can assume that property risk is something that involves a business not meeting their objectives as a result of owing property. There are many forms of property risk and these risks can vary depending on the type of business. However, in this week’s video clip Gary Goldstick, stated that the primary property risk that retail business face is the risk that the physical location of the business does not draw in the target demographic or a sufficient number of consumers (INTELECOM, n.d). Moreover, other types of property risk businesses face can include loss of rental income, theft, fire, owning property that is underinsured, and owing property that has inadequate space (Aon, n.d.).

There are a number of options that businesses have to overcome and mitigate the issues associated to property risk. One a popular method that businesses are utilizing to mitigate property risk is to hire full-time individuals or contractors who focus solely on facilities management. These individuals are responsible for ensuring a company is working at its highest level of efficiency (meaning reducing cost and increasing output), which leads to higher profitability (facilities management, 2009).

Another method that the company Johnson & Johnson has implemented to mitigate property risks (more specifically, the risk of having underinsured properties) is a computer application