Chapter 1: Risk Management & Sources of Law
WHY STUDY LAW?
As consumers, we all need to be aware of the rules that govern commercial transaction. In terms
of employment, you may intend to work in the public sector, thus you need to understand not
only the nature of gov’t org., but also the different types of laws that may affect you.
Every business decision or choices has a legal consequence. Some consequences are profitable
while others maybe financially disastrous. The difference between winning & losing in the
business world often depends upon the ability to make the right choice from a legal perspective.
oRisk Management is the process of identifying, evaluating, and responding to the possibility of
a)Identification: For e.g. If you are accuse your ex-employee of theft, she can sue you
for defamation (that’s the risk).
b)Evaluation: After identifying the risk, you may decide that a candid letter would
nevertheless be legally acceptable. Assess you case, & determine if you should share
this info with her new employer.
c)Response: After identifying and evaluating your risks, you need to formulate a
response. Do you write the letter?
The goal in risk management is not to eliminate the risk but to manage them. The appropriate
strategy depends upon the circumstances.
Risk Avoidance: Some risks are so serious that they should be avoided altogether.
E.g. A car that regularly explodes should be taken off the market. Aside from
issues of morality, the financial liability will probably outweigh the sales profits.
Risk Reduction: Some risk can be reduced to an acceptable level via precautions.
E.g. A bank can lead $500,000 to a manufacturing company, and to reduce their
risk of non-repayment they can have the company put a mortgage over its factory.
Risk shifting: Even if a risk cannot be avoided or reduced, it may be shifted onto
another party. Two important methods of shifting include insurance and exclusion.
Risk Acceptance: It is sometimes appropriate to simply accept a risk.
If a golf course operates behind a factory, it is possible that a wild shot might hit a
factory window & that the golf course could be held responsible for the resulting
Three important concepts:
a)Insurance is a contract in which one party agrees, in exchange for a price, to pay a
certain amount of money if another party suffers a loss.
i.Liability insurance: provides a benefit if the purchaser is held liable for doing
ii.Property insurance: provides a benefit if the purchase’s property is damaged, lost,
b)Exclusion Clause: is a contractual term that changes the usual rules of liability.
For instance, a courier comp. may provide notice that it will not be held liable for
more than $100 if a package is lost, damage, or destroy.
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