Reference no: EM133119755

There are four steps in risk management:

1. Risk identification, is the careful and systematic discovery of all risks that confront a household or an organization.
2. Risk measurement. Each risk can be measured in three basic ways:
   1. Loss frequency
   2. Loss severity
   3. Variability
3. Choice and use of alternative methods of treatment. Evaluate both the suitability and the cost of various methods of treating pure risks.
4. Risk administration must be carried out in conjunction with each of the first three steps of risk management.

Action Items

1. Read the following case and consider how the risk management process might be applied in a family situation.
   1. Travis and Ruth Jordan, a husband, and wife, have two children: Edward and Penny. Edward is 17 and will begin college as a full-time student in a few months. Penny is 13 and in the eighth grade. Travis is 42, and he is an executive for a chain of grocery stores. He earns $120,000 per year.  Ruth, aged 39, works part-time for an orthodontist and earns about $15,000 per year.
2. Then, in a document, write out the answers to these questions.
   1. Identify the risks the family is exposed to.
   2. Evaluate the identified risks for the probability and severity of the loss.
   3. Determine the alternatives for managing the risks identified.
3. Select the most appropriate alternative for each risk identified.