Types of Business Risk

Risk simply means the circumstances that pull someone and something valued to danger. Whereas a business risk is an exposure to uncertainties and undesirable situations that may lead to the company’s failure and downfall. Simpy anything or stuff that threaten’s company ability to meet targeted goals is called Business Risk.

Business risk refers to the likelihood that events or conditions will negatively impact a company’s ability to achieve its objectives. It is the potential for loss or the possibility of a negative impact on the company’s financial performance, reputation or operations. Business risk can come in many forms and can be caused by internal or external factors.

Some of the business risks are listed below.

  1. Financial Risk
  2. Strategic Risk
  3. Compliance Risk
  4. Legal Risk
  5. Political Risk
  6. Operational Risk
  7. Seasonality Risk
  8. Reputational Risk
  9. Innovation Risk
  10. Quality Risk
  11. Resource Risk

Also Read Tourism and Aviation Scenario In Nepal.

1. Financial Risk

Such type of risk is associated with the company’s capital structure, financing, and the finance industry. The company’s failure to repay a loan according to the terms agreed can be an example of financial risk. Also when the client delays the payment or fails to pay the payment, the company faces financial instability. Examples include market risk, credit risk, and liquidity risk.

2. Strategic Risk

Vital hazard emerges when a business does not work as per the plan or strategy of an organization. The strategy is a prime part of every business organization and when the plan fails there is a chance of business downfall risk. So when management doesn’t come up with the right strategy it is called strategic risk. Examples include market entry risk, product development risk, and mergers and acquisitions risk.

3. Compliance Risk 

There are the chances that a company may breach rules, regulations, and laws. This kind of compliance risk is likely to occur in businesses that are highly regulated by laws. So for a successful running of the business, it needs to adhere to some norms and legislation implied by the authority. When a business becomes unable to comply with such norms it is likely to face compliance risk. Examples include regulatory risk, data privacy risk, and anti-corruption risk.

Also Read: Types and Classification of Events

4. Seasonality Risk

It is likely to occur in service sector businesses like tourism and hotels. Such businesses rely on seasons. There’s a high and a low season resulting in seasonality risk.

5. Innovation Risk

Innovation in terms of service, product, and strategy is needed for a business to be flexible and adapt to the changing environment. But every time a business may not be able to innovate new products and ideas which may cause invitational risk.

6. Operational Risk

This is the risk that is caused by the internal failures of an organization and doesn’t relate to the external environment. For example, machinery fails, the plan fails, etc. The potential of failures related to the day-to-day operations of an organization is operational risk. Examples include supply chain risk, regulatory risk, and data security risk.

7. Quality Risk

It is the failure of an organization to meet the targeted or promised quality for a product or service. Such kind of risk may lead to low sales and profit.

8. Resource Risk

It is a kind of risk that is caused by limited resources like capital, labor, market, raw materials, etc. Such limitations hamper an organization to meet it’s targeted goals.

9.Reputational Risk

Reputation risk – This type of risk refers to the potential for loss resulting from damage to a company’s reputation or image. Examples include crisis management risk, social media risk, and brand reputation risk.

10 Environmental and Social risks

This type of risk refers to the potential negative impact of a company’s activities on the environment and society. Examples include climate change risk, deforestation risk, human rights risks, among others.

It’s important for companies to identify and evaluate the various types of business risks they face, and to develop strategies to mitigate or manage those risks. By doing so, companies can better protect their bottom line and increase their chances of long-term success.

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