ASSESSING RISK

RISK - THE POSSIBILITY THAT SOME LOSS MIGHT OCCUR.

WHAT ARE THE CAUSES OF RISK?

WHAT ARE THE EFFECTS OF RISK ON THE

BUSINESS?

HOW CAN WE CONTROL RISK?

SOURCES OF RISK

PRODUCTION AND YIELD MARKET AND PRICE BUSINESS AND FINANCIAL TECHNOLOGY AND OBSOLESCENCE CASUALTY LOSS SOCIAL AND LEGAL HUMAN

PRODUCTION AND YIELD RISK

VARIABILITY IN YIELDS AND PRODUCTION CAUSED BY FACTORS SUCH AS WEATHER, DISEASE, PESTS, GENETIC VARIATION, AND TIMING OF PRACTICES.

MARKET AND PRICE RISK

VARIABILITY AND UNPREDICTABILITY OF PRICES

BUSINESS RISK

SOURCES OF BUSINESS RISK ARE YIELD, OUTPUT PRICE, AND INPUT PRICES. BUSINESS RISK IS ASSOCIATED WITH CHARACTERISTICS OF THE BUSINESS.

FINANCIAL RISK

THE RISK ASSOCIATED WITH FINANCING, MEETING FIXED FINANCIAL OBLIGATIONS.

TECHNOLOGY AND OBSOLESCENCE RISK.

NEW TECHNOLOGY CAN MAKE CURRENT METHODS OBSOLETE.

CASUALTY LOSS

LOSS OF ASSETS DUE TO FIRE, WIND, HALE, FLOOD, AND THEFT.

SOCIAL AND LEGAL RISK

GOVERNMENT PROGRAMS AND REGULATIONS

HUMAN RISK

THE CHARACTER, HEALTH, AND BEHAVIOR OF INDIVIDUALS.

RISK-RATED MANAGEMENT STRATEGIES

RISK-RATED MANAGEMENT STRATEGIES START WITH THE ASSIGNMENT OF PROBABILISTIC OUTCOMES.

EXAMPLE: BEST, OPTIMISTIC, EXPECTED, PESSIMISTIC, AND WORST.

THE EXPECTED OUTCOME IS THE ONE MOST LIKELY TO OCCUR. MOST LIKELY PRICE, YIELD, AND COSTS.

A SERIES OF CASH FLOW BUDGETS MAY BE PREPARED TO ASSES THE IMPACTS OF THE POSSIBLE OUTCOMES.

RISK MANAGEMENT RULES OF

THUMB

1.THERE ARE NO CERTAIN PROFITS

2.HIGHER PROFITS TEND TO BE ASSOCIATED WITH HIGHER RISKS OF LOSS

3.THERE IS NO “BEST” STRATEGY

4.GOOD STRATEGIES IMPROVE THE ODDS OR CHANCE FOR SUCCESS

5. DECISIONS SHOULD BE EVALUATED WITH

RESPECT TO OBJECTIVES - NOT HINDSIGHT

6. GOOD DECISIONS SOMETIMES HAVE BAD OUTCOMES

7. GOOD STRATEGIES, OVER TIME, WILL PRODUCE GOOD RESULTS