What is Business Risk?

Business risk refers to a threat to the company’s ability to achieve its financial goals. In
business, risk means that a company’s or an organization’s plans may not turn out as
originally planned or that it may not meet its target or achieve its goals.
 

Managing Business Risks

The following are some of the areas that business owners can focus on to help manage
the risks that arise from running a business.

1. PRIORITIZE

The first step in creating a risk management plan should always be to prioritize
risks/threats. You can do so by using a somewhat universal scale based on risks/threats
that are: 

 Very likely to occur

 Some chance of occurrence
 Small chance of occurrence
 Very little chance of occurrence

Of course, a risk that falls into the top category should take priority over the others and
a plan to prevent, or at least mitigate, these risks should be put into place. However,
there is a catch. If a risk falls into a lower rung yet presents the potential for more
financial damage, then it should take priority.

2. BUY INSURANCE

Assess liabilities and legal regulations to determine what types of insurance will be

required for your business. This might include:

 Life insurance
 Disability insurance
 Professional insurance
 Completed operations insurance

Buying insurance allows you to transfer your risk to insurance companies for a small
cost, especially when compared to the potential cost of uncovered risk.
3. LIMIT LIABILITY

If you’re a sole proprietor, limit your liability by changing to a corporation or limited

liability company (LLC). In this type of structure, the owner of the business is not held
personally liable for the company's debts or other liabilities.

4. IMPLEMENT A QUALITY ASSURANCE PROGRAM

A good reputation is imperative if you want a sustainable business. Customer service is

key to success. Be sure to test your products and services in order to assure the
highest quality. By testing and analyzing what you’re offering, you will have an
opportunity to make necessary adjustments. Also, strongly consider taking it a step
further, which is to evaluate your testing and analyzing methods.

5. LIMIT HIGH-RISK CUSTOMERS

If you’re just getting started, immediately implement a rule that customers with poor
credit must pay ahead of time, which will avoid complications down the road. In order to
do this, you must have a procedure to identify poor credit risks far in advance.

6. CONTROL GROWTH

This has everything to do with employee training. If you’re selling products and/or
services and you set lofty goals for employees, they might be tempted to take
unnecessary risks, which can lead to a bad reputation for your company. Instead, train
your employees to focus on quality, not quantity. By doing so, you will avoid the risk of
declining sales due to high-pressure sales tactics that customers don’t appreciate.

On a related note, while innovation is a key to success, you don’t want to innovate too
fast. If your company is constantly relying on the next innovation for growth, then a
hiccup is inevitable because not all new products and services will be successful.

7. APPOINT A RISK MANAGEMENT TEAM

If you want to save capital by not having to hire an outside firm, and there is time
available, you can appoint current employees to head a risk management team.
However, this would only be wise if someone within the team has experience in this
area and can act as a leader.

Otherwise, paying for an outside risk management team will be a worthwhile

investment. They will be able to map out all the risks/threats to your company based on
your type of business and set up strategies to implement immediately if any of those
risks become a reality. This should lead to the prevention, or mitigation, of those
risks/threats. 
Once risks have been identified and assessed, all techniques
to manage the risk fall into one or more of these four major categories:
 Avoidance (eliminate, withdraw from or not become involved)
 Reduction (optimize – mitigate)
 Sharing (transfer – outsource or insure)
 Retention (accept and budget)

In the world of risk management, there are four main strategies:

 Avoid it.
 Reduce it.
 Transfer it.
 Accept it.

Avoiding Risks
Risk avoidance is the elimination of hazards, activities and exposures that can
negatively affect an organization's assets. Whereas risk management aims to control
the damages and financial consequences of threatening events, risk avoidance seeks
to avoid compromising events entirely.
Risk can be reduced in 2 ways—through loss prevention and
control. Examples of risk reduction are medical care, fire departments, night security
guards, sprinkler systems, burglar alarms—attempts to deal with risk by preventing the
loss or reducing the chance that it will occur.

Assuming Risks
Assumption of the risk involves a conscious or knowing acceptance of risks that are
inherent to the activity. Or, of which the participant has been thoroughly and completely
informed.  For example, have you ever attended a baseball game, particularly a Major
League game?  If so, chances are the reverse side of your ticket for admission
addresses your assumption of the known risks of attending such an event.  Primarily,
fans assume the risk of a baseball or bat leaving the playing field, striking them and
inflicting serious injury.
Reducing Risks
risk reduction deals with reducing the likelihood and severity of a possible loss.
Reducing Risks means doing behaviors that minimize or prevent complications and
negative outcomes of prediabetes and diabetes. Examples of these behaviors include
making positive lifestyle changes, participating in a type 2 diabetes prevention or
diabetes self-management education and support program, getting adequate sleep, and
getting recommended vaccines and health screenings.  Acknowledging that preventive
actions you can take now will benefit you years from now means you have the power to
change your health outcomes.

Transferring Risks
Risk transfer is a risk management and control strategy that involves the contractual
shifting of a pure risk from one party to another. One example is the purchase of an
insurance policy, by which a specified risk of loss is passed from the policyholder to the
insurer.

Pure Risks
There are only two possibilities; something bad happening or nothing happening. It
is unlikely that any measurable benefit will arise from a pure risk. The house will enjoy a
year with nothing bad occurring or there will be damage caused by a covered cause of
loss (fire, wind, etc.). Predicting the outcomes of a pure risk is accomplished
(sometimes) using the law of large numbers, a priori data or empirical data. Pure risk,
also known as absolute risk, is insurable.

Speculative Risks
Three possible outcomes exist in speculative risk: something good (gain), something
bad (loss) or nothing (staying even).
Gambling and investing in the stock market are two examples of speculative risks. Each
offers a chance to make money, lose money or walk away even. Again, do not equate
gambling and investing on any other level than as both being a speculative risk.
Gambling is designed to enrich one party (the house); the odds are always in its favor.
Investing is designed to enrich all involved, the house that set up the "game" AND those
that chose to place money in the game - all participants with "skin in the game" win or
lose together. Speculative risk is not insurable in the traditional insurance market; there
are other means to hedge speculative risk such as diversification and derivatives.

Keith davis of social responsibility

Libay
Robert daas