Coping with Risk

Businesses constantly face two basic types of risk—uncertainty about future events. Speculative risks, such as financial investments, involve the possibility of gain or loss. Pure risks involve only the possibility of loss or no loss. Designing and distributing a new product, for example, is a speculative risk—the product may fail or it may succeed and earn small or large profits. In contrast, the chance of a warehouse fire is a pure risk.

For a company to survive and prosper, it must manage both types of risk in a cost-effective manner. We can define the process ...

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