What is Business Risk?

Summary

This video explains the concept of business risk, highlighting its potential impact on a company's ability to meet its objectives. Business risk refers to the possibility of earning less profit or incurring losses due to factors beyond a company's control, such as sales volume, competition, or government regulations. It explores various types of risks, including strategic, financial, operational, and compliance risks, and provides examples like Kodak's failure to adapt to digital photography. The video also offers strategies to mitigate risks, such as SWOT analysis, risk analysis, and key performance indicators (KPIs).

Takeaways

• 😀 Business risk refers to the possibility that a company’s plans may not succeed as expected, leading to financial losses or lower-than-expected profits.
• 😀 Several factors contribute to business risks, including sales volume, production costs, competition, economic environment, and government regulations.
• 😀 Business risks can be classified into strategic, financial, operational, and compliance risks, each with different causes and consequences.
• 😀 Strategic risks may arise from factors like mergers, pressure from stakeholders, political instability, and changes in consumer demand.
• 😀 Financial risks are related to a company’s financial health and can include excess debt, mismanagement of cash flow, and fluctuations in interest rates or exchange rates.
• 😀 Operational risks involve risks within a company’s internal processes, systems, or people, such as cyber security failures, natural disasters, or labor strikes.
• 😀 Compliance risks occur when companies fail to adhere to new government regulations or industry standards, such as tax evasion or violations of labor laws.
• 😀 Business risks can arise from external factors such as competition, sudden changes in demand, natural disasters, and shifts in government policy.
• 😀 Key causes of business risks include poor management, technological challenges, natural disasters, and financial mismanagement.
• 😀 Businesses can mitigate risks by identifying potential risks early, using tools like SWOT analysis, and tracking performance with key performance indicators (KPIs).

Q & A

What is business risk?

Business risk refers to the possibility that a company’s plans may not work as expected, leading to potential losses or lower profits than anticipated. It is a threat to a company's ability to meet its objectives.

What factors affect business risk?

Factors affecting business risk include sales volume, unit price, production costs, competition, the overall economic environment, and government regulations.

What are the different types of business risk?

Business risks can be classified into four types: strategic risks, financial risks, operational risks, and compliance risks.

What are strategic risks?

Strategic risks arise from external factors such as mergers, shareholder pressure, competition, political instability, and changes in government regulations, among others.

How do financial risks impact a company?

Financial risks are related to factors that adversely affect a company’s financial growth and profitability. These include issues such as excessive debt, mismanagement of cash flow, changes in market interest rates, and fluctuations in exchange rates.

What is operational risk?

Operational risk arises from issues within a company’s systems, processes, or people. Examples include natural disasters, cybersecurity failures, labor strikes, and even embezzlement.

What causes compliance risks for businesses?

Compliance risks occur when companies fail to adhere to new rules or regulations set by the government or regulatory bodies. These can include violations of tax laws, labor laws, environmental regulations, and more.

What are some common causes of business risk?

Common causes of business risk include strong competition, changes in demand for products, poor management, natural disasters, technology usage, and shifts in government policies.

How can business risks be mitigated?

Business risks can be mitigated by identifying potential risks early through tools like SWOT analysis, KPIs, and setting risk tolerance thresholds. Implementing automated tools for alerts and notifications can also help manage risks.

Can you provide an example of a company that faced significant business risk?

Kodak is an example. The company failed to adapt to the rise of digital photography, leading to a drastic decrease in demand for their film products. This failure to mitigate the risk of technological disruption led to their downfall.