Business risk

Business risk refers to the potential for a company's operations or strategies to lead to financial loss or failure. It is a broad term that encompasses many different types of risks, including operational risk, financial risk, strategic risk, and reputational risk.

Definition

Business risk is defined as the possibility that a company will have lower than anticipated profits, or that it will experience a loss rather than making a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, and overall market conditions.

Types of Business Risk

There are several types of business risk, each with its own unique characteristics and potential impacts on a company's financial performance.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. This includes risks from employee misconduct, system failures, fraud, and other internal issues.

Financial Risk

Financial risk is associated with a company's financial structure and transactions. It includes risks related to debt load, leasing obligations, and other financial responsibilities.

Strategic Risk

Strategic risk is the risk that a company's strategic plans will not produce the desired results. This can be due to factors such as poor planning, changes in the competitive landscape, or shifts in customer demand.

Reputational Risk

Reputational risk is the potential for negative publicity, public perception, or uncontrollable events to have an adverse impact on a company's reputation, thereby affecting its revenue.

Management of Business Risk

Effective risk management can help a company to mitigate its business risks. This typically involves identifying potential risks, assessing their potential impacts, and developing strategies to manage them. These strategies can include risk avoidance, risk reduction, risk sharing, and risk retention.

See Also

• Risk management
• Operational risk
• Financial risk
• Strategic risk
• Reputational risk