The term business risk refers to the possibility
profits or even losses due to uncertainties e.g., changes in tastes, preferences of consumers, strikes, increased competition, change in government policy, obsolescence
etc .Every business organization contains various risk elements while doing the business. Business risks
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, an owner of a business may face different risks like in production,risks due to irregular
supply of raw materials, machinery breakdown
, labor unrest, etc. In marketing, risks may arise due to different market price
fluctuations, changing trends and fashions, error 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 may take place in different forms depending upon the nature and size of the business.
Business risks can major by 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 controlled) 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 and regulations of government).