What is Business Risk and how to deal with it?
TallyDekho is here to assist you in managing your business risk. In this article, we’ll see what is a business risk and how we can deal with such risks to hit success in the end.
Any individual who accomplishes any economic activity on a recurring basis with a profit-earning motive refers to as a business. And every business is exposed to some risk as no business goes high without indulging risk factor in the run. So, today we’ll discuss what are the types of business risks and how we can overcome them.
We know that risk and business both are complementary to each other. For any business, the risk is almost an inevitable element. We can say, the higher the risk, the higher is the profit level. It means the more is the business willing to take the risk the higher will be the chances of profit-making. Therefore, a successfully running business will definitely include risk elements in their business portfolio. Let’s have a look at the types of business risks:
Hazard Risk
Any mishappening in the workplace that can harm the people and is not in the control of the business is referred to as hazard. For example, machinery failure, natural calamities, tragedies arising due to dangerous chemicals, etc.
Operational Risk
Any loss occurring out of internal processing of the organization due to any factor can be referred to as operational risk. As the name suggests, this risk originates from the main operations of the concern itself. For example, managing inventory is a very crucial part of the business, so the risk related to inventory production comes under operational risk.
Financial Risk
The term ‘financial risk’ is self-explanatory. Any risk arising out of financial assets of the concern comes under this head. Any risk related to pricing policy, asset liquidation, distribution channel or investment made in any security all are the part of financial risk. In my opinion, this risk is the most vulnerable one. The business should plan very cautiously about the degree of the financial risk it can withstand as it has a direct impact on the functioning of the concern.
Strategic Risk
Risks arising out of poor business plans or strategies that ultimately affects the overall productivity of the business are referred to as strategic risk. Inadequate allocation of capital, wrong estimates in fiscal policy rates, etc are all strategic failures.
Factors influencing Business Risk
However, there are several factors that influence the degree of business risk. Some of them are as follows:
- Consumer demand and market supply
- Pricing strategy of the rival firm
- The degree of competition
- The prevailing economic structure
- Government regulations
- The availability of raw material
Business Risk Management Process
Well, it doesn’t matter how complicated things are, an efficient business risk management system can make things favorable. You cannot eliminate the risk factor completely but you can minimize it. Below given is the complete process telling how to manage business risk efficiently with the least risk factor involved.
Identification of Risks
The first step in the risk management process is to identify the areas of threats in business. Identify where the risk element lies for rooting up the problem and analyzing it.
Analyzing the specified risks
The next step after the identification of the risk element is to analyze the type of risk involved. The risk can be internal as well as external. Internal risks are the risks prevailing within the organization whereas the external risks are the risks that lie outside the concern like economic policies, government regulations, etc.
Taking corrective measures
After analyzing the risks involved, make a list of corrective measures you can take for fixing the issue. If the complete fixation isn’t possible try to figure out the measures that can help to minimize the risk involved. After that, select the most appropriate measure and implement into your business plan.
Following-up and monitoring opportunities
The last but not the least step is to follow-up on the implemented measure. Observe the business plan again and see whether now it’s working or not. See if the risk factor has been reduced to some extent. Along with that, keep on monitoring the new business opportunities, after all the early birds are always served first.
This way you can manage every type of business risk and make your business stronger with minimum risk. I hope this article helped you the way you wanted. Stay connected for more interesting articles. Feel free to share your feedback.
