With the development of the modern business world, business opportunities have widened more than before. People prefer involving in business than being stuck in a menial occupation. With the higher competition among the business rivals, they always try to seek new business approaches and opportunities to invest and widen the business capacity.
What is the risk in business?
Business risk is the vulnerability of a business to a loss of profit or failure. A risk can be based on an internal source or an external source. There is always a chance of facing risk in a business. It is important to be prepared and follow the precautions where necessary to minimize the impact on the business which comes with a loss or a failure.
Types of risks
There are four major types of risks.
- Hazard Risk – This type of risk includes anything that can be harmful to people within the business premises. It can be a machine breakdown, chemical reaction, fire, natural disaster, etc. A hazard risk can be both internal and external.
- Operational Risk – Operational issues such as lack of technological knowledge, the lethargy of the workers, using outdated machinery which makes a negative impact on the production which leads the business towards loss of profit or failure.
- Financial Risk – Financial issues can be a result of wrong pricing, selecting a supplier or a distributor which does not compatible with the business, etc.
- Strategy Risk – This risk occurs within the business operation. If the business doesn’t lead towards achieving the targets and objectives of the company, it will be a loss or failure in the long run.
Process of risk management
Business risk management (BRM) is a process. There are several steps in the procedure. First, the set of steps is established. It includes the instant where the BRM takes place. Once the risk identified, management analyzes the risk before move into the next step. After the analysis, the assessment is done. With the determiners of the assessment, management evaluates and decides the changes or modifications which should be done. Next, the company mitigates the identified risk and ranks it according to the impact for future reference. After the necessary action, management monitors the current situation where the actions actually implemented in the flow of the business. The final step is communication and consultation which provide information and make the people inside and outside of the business aware of the risk.
Importance of risk management for a business
Being prepared for any risk which may occur in the future is crucial for the development of a business. It gives an assurance of the stability of the business for all the people inside and outside of the business. It protects the assets in the business from harm and establishes a healthy atmosphere within the business.
Business risk management answers for questions. What are the risks in the business? How will this affect the business? What are the necessary steps to avoid it? How is the company going to cater the situation?
If a company can answer the above questions, it can be considered as a business with successful risk management.