Introduction Arkatov & Ryapukhina, 2015). According to the video,

Introduction

A risk is an event that is likely to
have a negative impact. Therefore, in business, a risk is any event that is
likely to affect the business negatively. There are many potential risks to a
business all of which can be categorized into four main categories namely
property, market, employee, and customer risk (Doroshenko, Somina, Arkatov
& Ryapukhina, 2015). According to the video, risk management is the concept
of the preserving “the assets and earning power of a business” (INTELECOM,
producer). Understanding the potential risks of business and how-to identity
such risks, provides a better opportunity to preventing them in the long run.

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Property risk

 A
property risk is the possibility of suffering financial loss as a result of
events affecting the business premises and physical infrastructure such as
buildings, land or furniture and equipment. This risk could be realized in the
event of a fire, adverse weather conditions a legal suit or even a terrorist
attack. A legal suit filed against a business entity could end in the sale of
buildings owned by the business which results in massive losses as all the
assets of the business have to be reacquired. A business could be started with
a loan whose security is the building or other assets like motor vehicle. In
the event that the business is unable to repay say a loan it acquired, then the
property that was used as security would be reacquired by the creditor. In this
case the business stands to lose because most of that acquired property is
crucial in the production process which means a reduction in output and a
decline in profits.

There is however, hope in saving a
business from suffering property risks. The most effective way is to do a good
research before putting any assets as collateral. For instance, before taking a
loan, the business manager should first examine the potential benefit of that
loan and also come up with an alternative repayment plan in case the projected
one fails to materialize. This ensures that the business has a kind of backup
plan to which they can always opt to use without putting the critical assets at
risk (Reason, 2016).

Market risk

The market is always the determinant of
how much profit a business would make. Any decision concerning a product is
therefore made with eyes fixed on the market. The market trends keep changing
and sometimes the projected state of the markets is no always constant. Some
factors that were unforeseen could greatly change the market trends from what
was earlier expected, meaning that prices of commodities may drop leading to
little or no profits for the business. For instance, a business may be
specializing in the manufacture of computer accessories and at the time of
budgeting, there could be few competitors meaning that high profits are
projected. However, after a few months, the government may decide to liberalize
the market, thus allowing more cheap imports from other countries. This would
make the products of the local company less competitive and eventually the
business might be forced to close shop.

However, a thorough analysis of the
market forces and a consideration of all possible risks in the planning process
could prevent the company from suffering the negative effects brought about by
such changes. An effective manager would be careful which products to spend
money on and avoiding producing more than the market demands especially in an
unstable business environment. For goods with concrete regulation however,
there is little cause for alarm as the market is unlikely to change and if it
does change, the change is more likely to be too insignificant to adversely
affect the business (Verbano & Venturini, 2013).

Employee risk

Employees ae one of the most critical
assets of a business. The entire success of any business entity is determined
by their effectiveness. An effective workforce therefore means that it is
adequately equipped with the skills necessary to carry out their functions. It
further implies that there are enough employees, who are well qualified to
carry out the tasks available.

There is however the risk of having a
qualified workforce who are rendered ineffective by the swift evolution of
certain factors, say, technology. This risk is sometimes unforeseeable because
innovations keep occurring and employees are more often not prepared to adapt
to the new systems. There comes thus the need for rather expensive and time-consuming
training sessions to match the employees’ skills with the present technological
requirements. The effective management of a business therefore requires regular
enhancement of employee skills through both formal and informal training.

Another aspect of employee risks is
labor policies which could translate to an increase in salaries for these
employees. If the company is not adequately prepared for such an increment,
then it stands to lose some of its most qualified employees. Therefore, to
avoid the risk of losing valuable employees due to these policies, a business
needs to enforce effective employee remuneration and welfare structures that
ensure employee welfare is promoted at all times and this would effectively
avert crises occasioned by preventable industrial action.

Customer risk

As much as the markets and the
employees are an important aspect of a business, the customers are the most
critical entities to any business. It is customers that guide production
patterns and their tastes and preferences inform decisions relating to product
quality and volume. A company produces with the expectation that there would be
customers to buy the product. However, there is however the risk of producing
what does not reflect the needs of the customers in the market.

A poor market research could result in
a product that does not meet customer needs and the result would be low sales
volume and eventually little or no profits. It is important therefore to
carefully assess the tastes and preferences of potential customers so that the
product produced can meet their needs. The most emphasized managerial strategy
here is thorough market research and if it is effective, customer risks can be
effectively kept at the minimum (Spender, 2014).

Conclusion

In conclusion, risks in business are to
be expected and how well a business prepares to manage those risks determines
how successful it would be in the end. According to INTELECOM (Producer), “Most
entrepreneurs are risk takers by definition, since the very act of going into
business entails an enormous risk”, however being able to identity and
recognize these risks can aid in avoiding and minimizing their appearance. As
we have discussed here there are four primary risks that businesses must
understand and be able to recognize to know how financial management techniques
or policies can be used to mitigate each of the risks.

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