Business Risk

Generalized definition  of  BUSINESS RISK -” Business Risk refers to the possibility of inadequate profit or even losses due to uncertainties or unexpected events .For example -emergent of competitors ;results in shift in demand from one business to another, shortage of raw material;results in lower production etc” In simple words we can explain it as no business can work without taking some risk.  Business Risk refers to the risk involved in a business,if taken, which can result into positive as well as negative consequences.

According to experts their are basically two types of business risks:

* SPECULATIVE RISK

*PURE RISK

The basic difference between both the risks is that Speculative Risks includes the possibility of gains as well losses .For example- favorable market conditions will lead to  gain whereas in case  of unfavorable conditions one will have to bear losses .Whereas in case of Pure Risks,it only includes either a loss or no loss . For example- in case of theft , we cannot say that their is any chance of profit or gain if theft occurs then there will be a’ loss’ but if it does not then there will be ‘no loss’. Another difference is that Pure risks can be covered by insurance whereas Speculative Risks cannot be covered under any condition.

Various business info. providing trusted WEBSITES have categorized business risks in the following way :

*Developmental Risk-‘ can the product or the idea actually be created?’ ie  this risk involves that whatever the idea the organisation has decided is it possible to develop it or it can only be imagined..

*Manufacturing Risk-‘ if the product can be developed ,can it actually be produced in appropriate volume?’ ie the organisation will have enough raw material or technology required to produce that product in the required amount? is the organisation capable of it ?

*Marketing Risk-‘if the product can be made ,can it be sold effectively ?’

*Financial Risk-‘ will the company be able to make profit , when the product is sold?’

*Growth risk-‘if the company incurs profit after selling the product ,will it be able to make that much profit even if it grows?’

Every business involves some risk and no business can sustain without incurring some risk. This is the basic nature of business.

Click here for government certification in Accounting, Banking & Finance