Do you know what business risk actually is? Well, first you need to understand what business risk is not. When you do business, there is risk involved in both doing business and taking part in it. Risk can be a positive or negative thing depending on its outcome. For instance, if you are planning to build a business, you have some risk involved because you have to spend money to start the business.
Other forms of business risk involves some kind of threat to the operations of your business. The most common form is the risk of going out of business. In business, the term operational risk is used to mean any situation that can affect the performance of the business. Such an event can either negatively impact the company’s profits or bring it down. As you can see, business risk involves both the probability of an adverse effect to the business as well as the likelihood of such an effect happening.
A business risk management strategy is essential if you are to minimise the potential for business risks and maximise the chance of your business surviving and thriving. But what does this mean? Let us discuss the different types of risk.
Reputation Risk Reputation management refers to the damage that can be caused to a business by adverse publicity. This includes instances when customers are harmed due to poor performance from a business or a product. An example of this is when an employee performs poorly and their superiors find out about it. The manager can use this case study to draw up a strategic plan of how to avoid similar things in the future and so minimize the damage that bad publicity can cause.
Operation Risk Operations involves many factors which can cause a business to go out of business. Some of these are natural disasters and other uncontrollable events like fires. Other factors include economic downturns, recession, sabotage, fraud, theft and bankruptcy. While each of these has specific characteristics, the effects that they have on a business and its employees are general business risk.
Government Regulations and Public Relations A major area of business risk include public relations. There are a wide range of things that a public relations officer can do in order to mitigate business risk. For example, if a company has an innovative product, government regulations could prohibit the production of the product or force the company to change certain aspects of the product which may have a bearing on its sales. In addition, the government may sue the company for not complying with regulations.
Compliance Risk is a major area of business risk because businesses often need to comply with a number of different regulations every single year. Often, this means that businesses have to update their laws, their procedures and their policies on a regular basis. Any time that a business makes a mistake, they must know about it and fix it in order to stay in business. Likewise, they must learn new rules and how to implement them. These mistakes often cost the business money because they require the services of lawyers and other professionals. In fact, many government agencies now rely on outside sources for compliance risk management purposes.
Leverage Effect This is a fancy term that basically means that a company has a lot of assets that is translating into a lot of leverage when it comes to dealing with other companies. For example, if a business has a lot of inventory then they will be able to get better discounts on products. When another business offers better pricing on the same product or supplies, the company has more leverage and can possibly get even more discounts or perks.