Business risks can be defined as the events or activities that when induced, they cause problems to the survival of a business entity. In the context of business organizations, risks can be categorized into internal and external risks. Internal risks manifest themselves within the business environment, and may include threats that undermine performance, safety, and security of employees at workplace. Such threats also trigger financial mismanagement, poor quality production, mechanical breakdowns of machines, and increased employee complaints.
Objective-based strategy
Through objective-based strategy, risks can be established, and this seeks to evaluate the events and activities that jeopardize the process and efforts of achieving the goals and objectives of a business. For example, if the objective of the business is to increase its profitability, but the technological innovations cannot support this initiative, this is then viewed as a risk, and the management should work towards improving on the technological innovations as a mitigation measure.
Taxonomy-based approach
A taxonomy-based approach may also be used to identify business risks. This means that possible risks sources are analyzed. Information on business risks can be sourced from the employees and the management, whereby, questionnaires are supplied and information gathered on the perceived risks that may manifests within a business or outside the business and result to inability to achieve the set goals and objectives.
The employees offer information on potential risks, and this is tabulated by listing them down evaluating their probability to occur, and the severity of the effects they may pose. In the business set-up, there are usually lists of known risks that are perceived as a threat to business operations. For instance, fire, employees’ safety at work, theft, financial misappropriation, employees’ strikes, and under-performance are perceived as ideal business risks.
Others may include unhealthy competition in the market, lack of resources to support the business, weak management team, natural disasters such as earthquakes and floods. All these may be common risks in a business set-up. Through the common-risk checking, these risks are analyzed, their probability to occur, and the severity of damage or impact they may bring to the business is also established.
Source analysis approach
The business risks may also be determined by source analysis whereby the source of the business risk is established. This means that if the source of the risk is poor management, then this mismanagement of the business is viewed as the risk.
If the source of a business risk is poor financial management, then the financial mismanagement is regarded as the risk. In other forms, the risks can be identified by the problem. This is the problem analysis and it normally entails establishing the threats that confront the business organization. For example, the threat of losing competitive edge, recording reduced profitability, losing loyal customers, or threat of the business burning down from fire or explosions. These threats are risks that can affect the continuity of the business.
Scenario-based method
The risks can also be identified through scenario-based method whereby any event or activity that induces an unjustifiable business position such as reduced profitability may be regarded as a risk. Other examples such as the activities that trigger complaints and cause conflicts of interests may also be cited as risks. Factors that hinder business from moving to particular region may be viewed as risks. For instance, the unstable political climate and government autocracy and bureaucracy in registering businesses may be the risks.
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