The term business risks refers to the possibility of a commercial

business Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...

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 uses 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, 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, ind ...

, changes in government policy, obsolescence etc. Every

business organization A business entity is an entity that is formed and administered as per corporate law in order to engage in business activities, charitable work, or other activities allowable. Most often, business entities are formed to sell a product or a servi ...

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 environm ...

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. For example, a company may face different risks in 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 that are feedstock for future finished products. As feeds ...

s, machinery breakdown, labor unrest, etc. In

marketing Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emph ...

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

fashion Fashion is a form of self-expression and autonomy at a particular period and place and in a specific context, of clothing, footwear, lifestyle, accessories, makeup, hairstyle, and body posture. The term implies a look defined by the fash ...

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 Business operations is the ''harvesting'' of value from assets owned by a business. Assets can be either ''physical'' or '' intangible''. An example of value derived from a physical asset, like a building, is rent. An example of value derived fro ...

. Thus business risks may take place in different forms depending upon the nature of a company and its production. 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 ...

, 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 ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three ele ...

propensities by sponsoring competitive

sports Sport pertains to any form of competitive physical activity or game that aims to use, maintain, or improve physical ability and skills while providing enjoyment to participants and, in some cases, entertainment to spectators. Sports can, ...

teams. Many business risks can be related to one another. With the introduction to the

Coronavirus Coronaviruses are a group of related RNA viruses that cause diseases in mammals and birds. In humans and birds, they cause respiratory tract infections that can range from mild to lethal. Mild illnesses in humans include some cases of the co ...

in 2019, many businesses fell victim to a lot of risks as a result of the damage to the market. A lot of internal risks arose including the much needed transition to online communication, via Zoom etc., 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 Strategic risk is the risk that failed business decisions may pose to a company. Strategic risk is often a major factor in determining a company's worth, particularly observable if the company experiences a sharp decline in a short period of time. ...

: 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 financia ...

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

{{Reflist Risk management in business