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Even though taking risks is an integral part of every job and the probability of facing any particular type of loss seems vanishingly small when all the possible losses have combined the risk of facing at least one of them is overwhelming. Therefore, protecting one’s business from risks is an essential component of any successful business management.

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Pansy Ellen Essman has built her business up thanks to her great idea to sell skillfully constructed sponge pillows that make bathing babies much easier. It is now crucial to pay attention to the details of risk management that may keep that business running. It is probably true that most threats to her business come from risks concerning the product use and she has insurance against that type of risk; however, there are other important risks as well. First off, given the fact that her firm has a production line, it is very important to equip every employee with the right type of protective gear to guard them against injuries at work. Secondly, it would probably be a smart move to hire a common carrier to distribute the goods to the sale spots because transportation in large trucks poses a great risk of car accidents that could deal great damage to the firm. Thirdly, fire risk is always a great threat to every firm, and installing a sprinkler system would be helpful in reducing the amount of damage that can be caused by fire. Finally, since the company is run by herself alone and she is already in her late forties there is a great risk of her illness or disability which could be fatal for the firm. It would be best to buy an insurance policy against that type of loss and if there are any key employees it would probably be a good idea to do the same for them.

Risk-retention is generally a good idea because not every firm faces the same amount of work in every domain and it makes little sense to waste money on insurance against the losses which have no chance of taking place. For example, a firm that makes baby products in Atlanta, Georgia faces incomparably lower risks of hurricanes and earthquakes than one located in Florida, so it would be smart to retain the risk of that type of loss. Furthermore, it is true that this type of company faces far less risk of workers injury than, for example, a construction company; therefore, risk retention in that domain would probably be a rational decision.


For this type of company, it is best to center the insurance coverage on product risks, as it does already, but in addition to that, it should probably buy policies insuring against the owner’s or key employee’s disability or sickness because those events could stop the firm’s activity altogether. Furthermore, general health insurance for the workers would also be a good idea as well as insurance against fire both of which can be combined with installing proper preventions systems. Finally, the owner should also pay attention to undertaking appropriate measures to reduce the risk of employee dishonesty because that problem can unnoticeably cause a lot of damage to any firm.

In conclusion, risk management is a very important component of any successful business because disregarding the risks can have fatal consequences in case of serious loss and, on the other hand, buying every possible insurance policy can leave the company without any profit. It is crucial to weigh out the possible risks and manage them rationally.


Longenecker, J. G., Moore, C. W., Petty, W. J., & Palich, L. E. (2009). Small Business Management: Launching and Growing Entrepreneurial Ventures (with Printed Access Card) (16th ed.). South-Western College Pub.

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