Page 503 - Business Principles and Management

Unit 5

steps to improve security. For example, if
FIGURE 18-5 Estimates of Annual Losses from Major Sandra Gilbert had lost one inexpensive
Business Risks
piece of jewelry, she might have been able
to make up for the loss through additional
sales. However, now that a large loss has
• One-third of all small business failures result from significant
business theft. occurred, Sandra probably wishes she had
done more to emphasize and implement
• Companies spend up to $10 million per year protecting against security procedures with her employees.
copyright losses.
Businesses can also lose money if em-
• Companies lose $15-25 billion to employee theft each year. ployees do not show up for work. An ab-
sent employee’s work will not be completed
• The average company loses $1.3 million each year to credit card fraud.
unless the company takes some action to
• Bad checks written by customers cost businesses an estimated get the work done. Because large businesses
$5 billion per year. expect a number of employees to be absent
on any given day, they may have part-time
• The average cost to settle a liability claim brought against a company
is $1 million. workers available on short notice or have
a contract with a temporary employment
agency to provide replacements. Some busi-
nesses may actually employ more people
than necessary because of the expected absentee rates. Managers should watch
absentee rates carefully and keep them as low as possible through policies, incen-
facts & tives, and penalties.
In most manufacturing processes, small amounts of materials are lost or
damaged. To make sure that losses do not interfere with production, a com-
figures pany should keep a larger quantity of those materials on hand to ensure an
adequate supply to complete production. Planning, training, and controls for
production processes should also reduce the amount of material loss in the
manufacturing process.
Under federal law, if a com- Many businesses, such as banks, investment firms, and insurance compa-
pany fails to maintain accurate nies, base their operations on records. The records are so valuable that the
business records and safeguard businesses could not operate if the records were damaged or destroyed. In
those records, the company this case, insurance is not adequate protection. The businesses must rely on
may be held liable. A recent the safety and security of their records. They store them in well-protected,
European study found that secure areas. They also keep duplicate records in a separate location, often
each incidence of lost data in another city.
costs a business an average of Another way businesses attempt to protect their vital operations is with
$2,615. The total in one year a disaster plan. Businesses anticipate the types of disasters that could occur,
to European businesses was the protection required, and ways to respond. Each department in the com-
estimated at $4.5 billion. pany regularly practices the disaster plan. For example, a manager may be
asked without warning to assume that an electrical problem has shut down
all computers in a department. The department must recover and operate
again as quickly as possible by following the procedures developed in the
disaster plan.
In each of the cases described, the company is gathering information, making
plans, and in some cases spending a small amount of money to prevent large
losses. This may be a better strategy for the company than purchasing insurance
for those losses, but it does not replace the need for insurance.

CHECKPOINT

In what ways can managers anticipate and reduce the effects
of risks to their business without insurance?

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