The term business risks refers to the possibility of a

commercial entity In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

making inadequate profits (or even losses) due to uncertainties - for example: changes in tastes, changing preferences of

consumer A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

s, staff motivation, strikes, increased

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indi ...

, changes in government policy, obsolescence etc. Every business organization faces various

risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...

elements while doing business. Business risk implies uncertainty in profits or danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes business to fail. Similar business risks can also affect

voluntary Voluntary may refer to: * Voluntary (music) * Voluntary or volunteer, person participating via volunteering/volunteerism * Voluntary muscle contraction See also * Voluntary action * Voluntariness, in law and philosophy * Voluntaryism Volunt ...

and

not-for-profit A not-for-profit or non-for-profit organization (NFPO) is a Legal Entity, legal entity that does not distribute surplus funds to its members and is formed to fulfill specific objectives. While not-for-profit organizations and Nonprofit organ ...

organisations. Business risks may arise in different forms depending upon the nature of a company and its business activities. A

manufacturing company Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the secondary sector of the economy. The term may refer to a ...

, for example, may face risks affecting production, risks due to irregular supply of

raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials/Intermediate goods that are feedstock for future finished ...

s, machinery breakdown, labor unrest, etc. In

marketing Marketing is the act of acquiring, satisfying and retaining customers. It is one of the primary components of Business administration, business management and commerce. Marketing is usually conducted by the seller, typically a retailer or ma ...

, risks may arise due to fluctuations in market prices, changing

trend A fad, trend, or craze is any form of collective behavior that develops within a culture, a generation, or social group in which a group of people enthusiastically follow an impulse for a short time period. Fads are objects or behaviors th ...

s and

fashion Fashion is a term used interchangeably to describe the creation of clothing, footwear, Fashion accessory, accessories, cosmetics, and jewellery of different cultural aesthetics and their mix and match into Clothing, outfits that depict distinct ...

s, errors in sales forecasting, etc. In addition, there may be loss of assets of the firm due to fire, flood, earthquakes, riots or war and political unrest which may cause unwanted interruptions in the business operations. Thus Business risks can arise due to the influence by two major risks: internal risks (risks arising from the events taking place within the organization) and external risks (risks arising from the events taking place outside the organization): * Internal risks arise from factors (endogenous variables, which can be influenced) such as: ** human factors (talent management, strikes) ** technological factors (emerging technologies) ** physical factors (failure of machines, fire or theft) ** operational factors (access to credit, cost cutting, advertisement) * External risks arise from factors (exogenous variables, which cannot be controlled) such as: ** economic factors (market risks, pricing pressure) ** natural factors (floods, earthquakes) ** political factors (compliance demands and regulations imposed by governments) Though corporate entities may have an image of

risk aversion In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more c ...

, they may continue to stake their reputations and indulge in their

gambling Gambling (also known as betting or gaming) is the wagering of something of Value (economics), value ("the stakes") on a Event (probability theory), random event with the intent of winning something else of value, where instances of strategy (ga ...

propensities by sponsoring competitive

sports Sport is a physical activity or game, often competitive and organized, that maintains or improves physical ability and skills. Sport may provide enjoyment to participants and entertainment to spectators. The number of participants in ...

teams. Many business risks can be related to one another. With the onset of the global

Coronavirus pandemic The COVID-19 pandemic (also known as the coronavirus pandemic and COVID pandemic), caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), began with an disease outbreak, outbreak of COVID-19 in Wuhan, China, in December ...

in 2019, many businesses fell victim to risks arising as a result of the damage to the

market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market *Marketing, the act of sat ...

. A lot of internal risks arose including the much needed transition to online communication, within a business. A specific example of external risks can be highlighted by the change in the stock market in early 2020. Between late February to late March, out of the 22 stock market trading days, there were 18 drastic stock market jumps. Stock market jumps can ultimately cause stocks to have lower stability and higher volatility. The uncertainty of whether or not a stock is secure indicates a risk of any certain business.

Classification

The business risk is classified into five different main types # Strategic risk: They are the risks associated with the operations of that particular industry. These kind of risks arise from: ## Business environment: Buyers and sellers interacting to buy and sell goods and services, changes in supply and demand, competitive structures and introduction of new technologies. ## Transaction: Assets relocation of mergers and acquisitions, spin-offs, alliances and joint ventures. ## Investor relations: Strategy for communicating with individuals who have invested in the business. #

Financial risk Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financi ...

: These are the risks associated with the financial structure and transactions of the particular industry. #

Operational risk Operational risk is the risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations. Employee errors, criminal activity such as fraud, and physical events are among the factors that can tri ...

: These are the risks associated with the operational and administrative procedures of the particular industry. # Compliance risk (legal risk): These are risks associated with the need to comply with the rules and regulations of the government. # Other risks: There would be different risks like natural disaster (floods) and others depend upon the nature and scale of the industry.

References

{{Authority control Risk management in business