Business risks

Short description: Uncertainty in profitability and operations

The term "business risks" refers to the possibility of a commercial entity making inadequate profits (or even losses) due to uncertainties - for example: changes in tastes, changing preferences of consumers, staff (de)motivation, strikes, increased competition, changes in government policy, obsolescence etc. Every business organization faces various risk elements.[1] Business risk implies uncertainty in profits or danger of loss and events that could pose unforeseen risk in the future which may cause a company to fail.[2][3][4] Voluntary and not-for-profit organisations may face similar risks.[5] Business-risk factors may arise in different forms depending upon the nature of a company and of its activities. A manufacturing company, for example, may face risks affecting production, risks due to irregular supply of raw materials, machinery breakdown, labor unrest, etc. In marketing, risks may arise due to fluctuations in market prices, changing trends and fashions, 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 risks can have two major forms: 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):[6][7][8]

* Internal risks arise from factors (endogenous variables, which can be influenced) such as:
* human factors (talent management, strikes)
* technological factors (emerging or sunset 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)
* fickle fashion trends
* political factors (compliance demands and regulations imposed by governments)

Though corporate entities may have an image of risk aversion, they may continue to stake their reputations and indulge in their gambling propensities by sponsoring competitive sports-teams.

Many business risks can interrelate. With the onset of the global Coronavirus pandemic in 2019, many firms fell victim to events arising as a result of the damage to the stock market. A lot of internal factors became prominent, including the much-needed transition to online communication within a business.[9]

Change in the stock market in early 2020 highlights a specific example of external risks. Between late February and late March, out of 22 stock-market trading-days, there were 18 drastic stock-market jumps. Stock-market jumps may indicate lower stock stability and higher volatility.[10] The uncertainty of whether or not a stock is secure indicates a risk of any certain business.[citation needed]

## Classification

The business risk is classified into five different main types[11]

1. Strategic risk: They are the risks associated with the operations of that particular industry. These kind of risks arise from:
1. 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.
2. Transaction: Assets relocation of mergers and acquisitions, spin-offs, alliances and joint ventures.
3. Investor relations: Strategy for communicating with individuals who have invested in the business.
2. Financial risk: These are the risks associated with the financial structure and transactions of the particular industry.
3. Operational risk: These are the risks associated with the operational and administrative procedures of the particular industry.
4. Compliance risk (legal risk): These are risks associated with the need to comply with the rules and regulations of the government.
5. Other risks: There would be different risks like natural disaster (floods) and others depend upon the nature and scale of the industry.[12]

## References

1. ↑ Gissing, George (1891). New Grub Street. 2 (2nd ed.). London: Smith, Elder. p. 281. https://books.google.com/books?id=sivQAAAAMAAJ. Retrieved 14 August 2025. "[...] every commercial enterprise is a speculation."
2. ↑ "Business Risks". http://business.gov.in/growing_business/business_risks.php. "Business Risks"
3. ↑ "Business Risks Explanation". August 2010. http://www.wikicfo.com/Wiki/Default.aspx?Page=Business-Risk&NS=&AspxAutoDetectCookieSupport=1. "Business Risks"
4. ↑ "Investopedia ,definition". http://www.investopedia.com/terms/b/businessrisk.asp#axzz27Teb1xOk. "Business risk is the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, the overall economic climate and government regulations."
5. ↑ National Council for Voluntary Organisations (NCVO), Workforce Wheel: An outcomes tool to help you support and measure change in people management, first published (pilot edition) in June 2008, accessed online on 3 March 2025
6. ↑ "influencing types of business risk". http://business.gov.in/growing_business/types_business.php#top. "Influencing factors types in Business Risk"
7. ↑ Miles, D. Anthony (2011). Risk Factors and Business Models: Understanding the Five Forces of Entrepreneurial Risk and the Causes of Business Failure. dissertation.com. p. 1. ISBN 978-1-59942-388-3. https://books.google.com/books?id=Kpt5H8Xq7yUC&q=business+risks+in+business.
8. ↑ "Risk Factors". http://www.ey.com/GL/en/Services/Advisory/Turn-risks-and-opportunities-into-results
The-top-10-risks-and-opportunities-for-global-organizations. "Factors in Business Risk"
9. ↑ Budhwar, Pawan; Cumming, Douglas (2020). "New Directions in Management Research and Communication: Lessons from the COVID-19 Pandemic" (in en). British Journal of Management 31 (3): 441–443. doi:10.1111/1467-8551.12426. ISSN 1467-8551.
10. ↑ "The Unprecedented Stock-Market Reaction to COVID-19" (in en). April 2020. https://insight.kellogg.northwestern.edu/article/what-explains-the-unprecedented-stock-market-reaction-to-covid-19. "[...] the stock-market impact of the COVID-19 pandemic is more temporally concentrated and more likely to trigger daily stock-market jumps and high stock-market volatility than Spanish Flu developments did a century earlier."
11. ↑ Jolly, Adam (2003). Managing Business Risk: A Practical Guide to Protecting Your Business. Kogan Page Limited. pp. 6–7. ISBN 0-7494-4081-3. https://books.google.com/books?id=020T7JWvPogC&q=business+risks.
12. ↑ "types". http://smallbusiness.chron.com/types-business-risk-99.html. "Types of Business Risks"

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