Comment your opinion about this post. A business risk is defined by Longenecker et al. (2020) as the possibility of loss
Posted: Wed May 04, 2022 7:55 am
Comment your opinion about this post.
A business risk is defined by Longenecker et al. (2020) as the
possibility of losses derived from assets and earnings potential of
a firm. The term assets refer to inventory, equipment, employees,
customers, and reputation. In addition, a risk can be viewed from
two different perspectives, creating market risk and pure risk.
Market risk is the uncertainty that rises while taking an
investment decision (Longenecker et al., 2020). This kind of risk
is pretty much always existing as an investment cannot be sure at
100%. The ability of an entrepreneur is to evaluate how much this
risk is big to make the investment worth. On the other hand, pure
risk comes when a situation has only two possible outcomes: loss or
no loss (Longenecker et al., 2020). Differentiating from market
risk, pure risk is insurable. For entrepreneurs risks are
always behind the corner. Moreover, risks can have different
origins. In fact, as per Kenton (2022), there are four types of
risk that a business may encounter: strategic risk, compliance
risk, operational risk, and reputational risk. Strategic risk is
when a business does not operate following its business model. A
compliance risk arises when a company fails to meet the
requirements established by the state where they are operating.
Operational risk is seen when a company is not able to perform
day-to-day operations in an effective manner. Lastly, reputational
risk simply comes when the reputation of a business is ruined by an
event or whatever (Kenton, 2022). I would add financial risk as
well, as many companies encounter problems with
finance. Managing risks is very delicate for a company.
Therefore, it should be done with attention. According to
Longenecker et al. (2020) risk management is a 5-step process. The
first step is to identify and understand risks. Then, evaluate the
potential severity or risks. After that a company has to select
methods to manage risks, which are divided between risk control,
which is the minimization of losses, and risk financing, which
consists in making funds available for losses that cannot be
eliminated by risk control. Following this, the firm has to
implement the decision. And finally, a review and evaluation take
place. This process is the best way to be sure a risk is carefully
managed. Obviously, it does not guarantee that the risk will be
avoided.
A business risk is defined by Longenecker et al. (2020) as the
possibility of losses derived from assets and earnings potential of
a firm. The term assets refer to inventory, equipment, employees,
customers, and reputation. In addition, a risk can be viewed from
two different perspectives, creating market risk and pure risk.
Market risk is the uncertainty that rises while taking an
investment decision (Longenecker et al., 2020). This kind of risk
is pretty much always existing as an investment cannot be sure at
100%. The ability of an entrepreneur is to evaluate how much this
risk is big to make the investment worth. On the other hand, pure
risk comes when a situation has only two possible outcomes: loss or
no loss (Longenecker et al., 2020). Differentiating from market
risk, pure risk is insurable. For entrepreneurs risks are
always behind the corner. Moreover, risks can have different
origins. In fact, as per Kenton (2022), there are four types of
risk that a business may encounter: strategic risk, compliance
risk, operational risk, and reputational risk. Strategic risk is
when a business does not operate following its business model. A
compliance risk arises when a company fails to meet the
requirements established by the state where they are operating.
Operational risk is seen when a company is not able to perform
day-to-day operations in an effective manner. Lastly, reputational
risk simply comes when the reputation of a business is ruined by an
event or whatever (Kenton, 2022). I would add financial risk as
well, as many companies encounter problems with
finance. Managing risks is very delicate for a company.
Therefore, it should be done with attention. According to
Longenecker et al. (2020) risk management is a 5-step process. The
first step is to identify and understand risks. Then, evaluate the
potential severity or risks. After that a company has to select
methods to manage risks, which are divided between risk control,
which is the minimization of losses, and risk financing, which
consists in making funds available for losses that cannot be
eliminated by risk control. Following this, the firm has to
implement the decision. And finally, a review and evaluation take
place. This process is the best way to be sure a risk is carefully
managed. Obviously, it does not guarantee that the risk will be
avoided.