What Are the Nature of Business Risk

Economic factors are associated with the possibility of losses due to changing market conditions. There may be a change in the level of competition. Changes in government policy also have a significant impact on the economy. Uncertainties regarding demand for goods, competition, prices, charging of costs to customers, changes in technology or production technique, etc. are also included in the economic causes of risk. It also includes financial issues, such as rising interest rates on borrowing, imposing increased taxes, etc., as they lead to increased unexpected operating costs or business costs. All this has a direct impact on profits. While companies may have an image of risk aversion, they can still put their reputation on the line and satisfy their gambling inclinations by sponsoring competitive sports teams. Do you like what you read? Get an email every time we publish a new blog post.

Even changes in government policy have a major impact on businesses. For example, when the Janata government came to power in 1971, the Coca-Cola Company and many other foreign companies were sent back to India. Business risk can be defined as the possibility of adverse events that increase the likelihood of losses and reduce the likelihood of profits. Business risk refers to the possibility of insufficient profits or losses due to unpredictability such as changes in consumer preferences, strikes, increased competition, government policies, obsolescence, etc. The term business risk refers to the possibility that a commercial enterprise may make insufficient profits (or even losses) due to uncertainties – for example: changes in taste, changes in consumer preferences, strikes, increased competition, changes in government policy, obsolescence, etc. Each commercial organization is exposed to different elements of risk in its business activities. Business risk involves uncertainty about profits or losses and events that, due to unforeseen events in the future, could pose a risk that leads to the bankruptcy of the business. [1] [2] [3] Human causes are related to a probability of loss by individuals or employees of the organization. Employee dishonesty can lead to serious losses to the company, such as: Employees can disclose a trade secret to a competitor and commit fraud, which also leads to heavy losses due to wasted resources. Pure risk refers to risks that cannot be controlled by humans and that result in loss or no loss with no prospect of financial gain.

Pure risk situations are fires, floods and other natural disasters as well as unexpected incidents such as terrorist acts or premature deaths. Risk managers manage risk in four ways: by minimizing it, avoiding it, accepting it or transferring it. Many forms of pure risk are dealt with by purchasing insurance for potential damages, so the risk is transferred to an insurer. A concrete example of external risks can be the evolution of the stock market in early 2020. Between the end of February and the end of March, there were 18 drastic increases in the stock market over the 22 trading days. Stock market rises can ultimately lead to less stability and higher volatility in stocks. Uncertainty about whether a stock is safe or not indicates a risk of a particular transaction. [8] The risks that can be covered are called insurable risks. Losses that can be compensated or losses for which the company can receive compensation from the insurance company are called insurable risks. In general, natural and physical risks are insurable risks, for example, businessmen can take out fire insurance to obtain protection against floods, earthquakes or damage to property such as boiler bursting, etc.

In ancient times, business risks were lower and limited. In today`s world, characterized by intense competition, advanced technologies and globalization of the economy; The business risks are very high. In addition, business risks are likely to intensify in the coming periods. Internal business risk is related to the company`s internal environment. The company must operate in its limited environment due to internal business concerns. Internal business risks differ from company to company due to internal environmental conditions. As a result, every company has a unique set of internal risks, and its success depends on its ability to manage those risks. Some of the economic causes that lead to commercial risks may be: (d) The degree of risk depends mainly on the type and size of the enterprise: the nature of the enterprise, the type of goods and services produced and the volume of production of the enterprise determine the level of risk.

The larger the sale of a business, the higher the risk potential. Whether the company`s management is able to successfully manage and manage business risks; These offer many profit opportunities for the company. Enterprise risk is divided into five main types.[9] Business risk is defined as the possibility of an adverse event occurring, which has the potential to minimize profits and maximize a company`s losses. Simply put, business risks are the factors that increase the likelihood of losses in a business and reduce the chances of profit. Therefore, it offers many types and types of insurance in modern times; These risks cannot be qualified as risks in the strict sense of the term. Commercial risks are therefore those that are only economically independent and uninsurable. Business risks can be defined as uncertainties or unexpected events beyond our control. Simply put, we can say that business risk means the possibility of losses or less profit than expected. These factors cannot be controlled by businessmen and can lead to a drop in profits or even a loss. The natural hazards to which any company is exposed are, in most cases, far beyond human control. Natural causes of business risk include natural disasters, phenomena such as earthquakes, hurricanes, droughts, etc. These disasters can lead to huge losses for a business, such as severe damage to infrastructure, major disruptions to business operations, inventory losses, and even non-compensable losses such as loss of human resources, etc.

Although innovations have developed various new precautions such as sealed machines, etc., natural hazards remain the most powerful and dangerous. 3. Economic causes: The economic causes of business risk arise from changes in various economic factors such as increased competition, changing market conditions, rising commodity prices, production costs and wages. The nature of operational risks could be evidenced by the following characteristics: Human causes are associated with the possibility of losses due to the organization`s human resources. Employee dishonesty can lead to significant losses for businesses. For example, employees may disclose a trade secret to a competitor or engage in fraud, resulting in significant losses due to wasted resources. Employees can disrupt production by striking, rioting, etc. It can also lead to a significant loss of the company`s position. Risk is an important characteristic of the business.

No company can avoid risk, although the degree of risk may vary, the risk can be reduced but not eliminated. Uncertainties mean if you`re not sure what will happen in the future. Common examples of uncertainty include changes in demand, government policy, technology, etc. Business risk is due to these uncertainties. Internal risks are those arising from events within the organization. These risks are manageable because the probability of their occurrence can be estimated. The first step brands typically take is to identify all sources of risk in their business plan. These are not only external risks, but also from within the company itself.