BUSINESS

MANAGEMENT

RISK MANAGEMENT
 OBJECTIVES
By the end of the lesson, students will be able to:

I. Define risk management.

II. Identify and explain business risks

III. Give and explain some types of business risk

IV. Explain the risk management strategy and know which

 WHAT IS RISK?
• Risk implies future uncertainty about deviation from expected earnings or
expected outcome.

• It can be defined as the probability that something or human being may be

defected, lost, damaged or harmed or dangerous may happen.

• Business risk refers to the propensity that a firm’s performance will be lower
than expected because of its exposure to certain conditions.

• Risk measures the uncertainty that an investor is willing to take to realize a

gain from an investment.
• Risk is a unique tool to help guide us in life when making any and all
decisions.

Examples of risk could be how you manage your health (or not), how
you strategize your performance at work and meet your goals, who you
allow into your life, and the effects that have on your social life and
network.

RISK REGISTER

A risk register is a document that records all of your organization's

identified risks, the likelihood and consequences of a risk occurring, the
actions you are taking to reduce those risks and who is responsible for
managing them.
• Example; Menz Gold saga and collapsing and Merging of some
banks in Ghana.

Businesses has an objective to make profit and continue

conducting business but there is a risk of loss and business failure
through injury, fire, flood or storm.

• Risks are of different types and originate from different

situations.

We have liquidity risk, sovereign risk, insurance risk, business

risk, default risk, etc.

• Various risks originate due to the uncertainty arising out of

DEFINITION OF RISK MANAGEMENT

There is a risk to every business decision you

make.
So, instead of relying on emotional character,
it's a good idea to use risk management to
guide your business decisions.

Understand what risk management is and the

types of risk that could affect your business.
• Risk management involves action taken by management of a business to
avoid or minimize losses arising out of unforseen circumstances or
events.

• Risk management is the process identifying, analyzing, monitoring,

evaluating and mitigating risk that threatens the achievement of the
organization's strategic objectives in a disciplined and systematic way.

• Risk management helps managers to make better business decisions. It

involves reducing the things that could have a negative effect on your
business.

• For example, reducing the risk of injury through safety procedures.

You can also look for opportunities that could have a positive impact on
 HOW YOU CAN MANAGE RISK IN YOUR BUSINESS

• Begin by finding out about risk management practices and how you
can use them.
You should also talk to others involved in your business (including
your employees and customers) to decide on the best way to manage
risk in your business.
• Before you decide what to do, you’ll need to work out what your risks
are and which ones are most urgent:
• Identify – work out what risks your business could face.

• Analyse – find the level of the risks and which ones are most urgent.

• Evaluate – compare the risk against set risk criteria to decide what to
do. 4. Monitor:
 WHY WE MANAGE RISK?
• By managing risk, you can reduce the impact of unexpected
events on your business.
Managing risk can also help you to:

I. improve your relationships with customers, suppliers,

employees and the community, by understanding and
managing their expectations.

II. improve staff confidence in a safe work environment,

through workplace health and safety and worker’s
compensation insurance.
III. keep your business open during natural or economic disasters, by
having an emergency management plan.

IV. reduce your compliance and insurance costs, by having a lower risk
of damages.

You won't always have enough information or the resources to manage

every risk.
A good risk management plan will allow you to change your approach
if it isn't working, or when unexpected risk happens.
 Risks that you must manage
You're required by law to manage some risks. For example, you must
manage or reduce the risk of:

• accidents and injury by making your workplace safe under work and
health safety laws.

• customer complaints by treating customers fairly under Ghanaian

customer law.

• injury or harm to employees by having workers compensation law.

• damaging the environment by meeting the environmental laws that apply

 TYPES OF BUSINESS RISK

1. POLITICAL RISK: Political risk is generally defined as the risk to

business interests resulting from political instability or political

change. Political risk exists in every country around the globe and

varies in magnitude and type from country to country.

Political risks may arise from policy changes by governments to change

controls imposed on exchange rates and interest rates.

Political Risk have an important influence on the functioning

of a business, both in the long term and short term.

They results from political changes in a country like fall or

change in the government, communal violence may affect the

profitability and position of an enterprise.

Moreover, political risk may be caused by actions of legitimate

governments such as controls on prices, outputs, activities, and

currency and remittance restrictions.

Political risk may also result from events outside of government

controls such as war, revolution, terrorism, labor strikes, and

extortion.
 2. NATURAL RISK

Natural risk factors include natural disasters that affect

normal business operations. An earthquake, for

example, may affect the ability of a retail business to

remain open for a number of days or weeks, leading to a

• These are unforseen natural circumstances over which

an entrepreneur has very little or no control. They

result from events like famine, flood lightening etc,

which may cause loss of life and property to the firms

or goods of the firm.

 3. TECHNOLOGICAL RISK

• Technology risk, also known as information technology risk, is a

type of business risk defined as the potential for any technology

failure to disrupt a business. Companies face many types of

technology risks, such as information security incidents, cyber

attacks, password theft, service outages, and more.

• These are the unforseen changes in the techniques of production or

distribution. They may result in technological obsolescence and other

business risks.

• For example if there is technological advancement which results in

products of higher quality, then the firm which is using traditional

technique of production might face the risk of losing the market for its
 4. ENVIRONMENTAL RISK

Environmental risk is the probability and consequence of an

unwanted accident. Because of deficiencies in waste

management, waste transport, and waste treatment and

disposal, several pollutants are released into the environment,

which cause serious threats to human health along their way.

Environmental risks to health include pollution, radiation, noise, land

use patterns, or climate change.

These risks are driven by policies in sectors outside the health sector,

such as energy, industry, agriculture, transport, and land planning.

Environmental health is a growing area of knowledge, continually

increasing and updating the body of evidence linking the environment

to human health.
 5. PERSONNEL(WORKERS) RISK

A company’s success rests in many different areas.

Each area has to be effective for the whole company to function in the

optimum way. Personnel are a key resource in a company’s operations.

The anticipation and management of personnel-related risks are an

essential part of business activity.

• Personnel risks refer to threats that may be directed towards a

company's employees. These risks may originate from within the

company or from external sources.

• On the other hand, personnel, too, cause risks to a company. Hazard

identification is the first stage of risk management.

• It is particularly true in Small and Medium-sized Enterprises where a

company’s success is based on the expertise and motivation of its

• The absence of one single person may cause delays in deliveries,
faults in quality and other threats to a company’s operation.

• In addition, absence immediately increases the workload for other

employees.

• Over the years, experienced employees in particular have gathered

expertise that includes a lot of undocumented knowledge concerning
the operations of their company.

• This knowledge and expertise could provide the company’s

competitive edge, even though its existence might not even be
recognized.
 RISK MANAGEMENT STRATEGY
• A risk management strategy is a key part of the risk
management lifecycle.

• After identifying risks and assessing the likelihood of them

happening, as well as the impact they could have, you will
need to decide how to treat them. The approach you decide to
take is your risk management strategy.

• This is also sometimes referred to as risk treatment.

• There are four main risk management strategies, or risk treatment options:

• Risk acceptance

• Risk transference

• Risk avoidance

• Risk reduction

Choosing the right one will mean the difference between managing
each potential risk effectively or facing serious consequences that could damage
your business.

Let’s take a closer look at what these four approaches involve and some
 RISK ACCEPTANCE

• Risk acceptance definition: A risk is accepted with no action taken to

mitigate it.

• This approach will not reduce the impact of a risk or even prevent it from

happening, but that’s not necessarily a bad thing.

• Sometimes the cost of mitigating risks can exceed the cost of the risk itself,

in which case it makes more sense to simply accept the risk. After all, why
• However, this approach does come with a gamble. You will

need to be sure that, if the risk does occur in the future, then

you will be able to deal with it when the time comes.

• Because of this, it is best to accept risks only when the risk

has a low chance of occurring or will have minimal impact if

it does occur.
 RISK TRANSFERENCE

• Risk transference definition: A risk is transferred via a contract

to an external party who will assume the risk on an

organization's behalf.

Choosing to transfer a risk does not entirely eradicate it. The risk

still exists, only the responsibility for it shifts from your

• An example of this would be travel insurance.

You don’t accept the risk of a lost suitcase or an accident abroad and the

costs that this would bring – you pay a travel insurance company to bear

the financial consequences for you.

• The same goes for the workplace. You may outsource work – and the

risks that come with it - to a contractor.

In finance, you may adopt a hedging strategy to protect your assets or

 RISK AVOIDANCE

• Risk avoidance definition: A risk is eliminated by not taking any action

that would mean the risk could occur.

• If you choose this approach, you are aiming to completely eliminate the

possibility of the risk occurring. One example of risk avoidance would be

with investment. If, after analyzing the risks associated with that

investment, you deem it too risky, then you simply do not make the
• Treating risks by avoiding them should be reserved for risks

that would have a major impact on your organization if they

were to occur. However, if you avoid every risk you come up

against, you may miss out on positive opportunities.

• You never know, that investment you decided not to make

could have paid off. That is why it’s important to thoroughly

 RISK REDUCTION

• Risk reduction definition: A risk becomes less severe through actions

taken to prevent or minimize its impact.

• Risk reduction is a common strategy when it comes to risk treatment.

It is sometimes known as lowering risk. By choosing this approach,

you will need to work out the measures or actions you can take that

will make risks more manageable.

• One example of risk reduction would be within manufacturing and the

risk of products being produced to incorrect specifications. Using a

quality management system can lower the chance of this happening, so

this would be a method of risk reduction. In the finance industry, you

may face risks associated with new regulations. Implementing a digital

solution to help you manage regulatory requirements can mitigate the

risks of non-compliance and would therefore also be an example of

risk reduction.
 So which strategy should you choose?

• As you can probably guess, that depends on the risk. You will

need to fully understand each risk your organization faces so

that you can choose the appropriate strategy to treat them –

whether that’s through acceptance, transference, avoidance or

reduction.
END OF LESSON

THANK YOU