The Different Types of Risks That May Threaten Your Business

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Every business is exposed to certain kinds of risks. The risks maybe internal or external, however, it is important to understand each risk and then create a strategy to alleviate those risks. Below are some of the key risks that your business may be susceptible to. It is important to understand them in order to enable you to manage and avoid them effectively using best practice strategies of risk alleviation and risk management.

Strategic Risk

These are external risks that affect a company when certain changes take place within the industry the firm is operating in. For instance, if the technology or the equipment used by the firm becomes obsolete or if certain shifts occur in consumer preferences, the business will be directly affected.

To counter strategic risks, the managers of your firm may need to implement certain control measures that enable them to receive important information regarding the firm and the industry in order to detect such changes in their early stages.

Operational Risk

This risk is an outcome of internal failures. If the internal processes, systems or people of your firm fail to accomplish their tasks efficiently to achieve the required results, then your firm is prone to operational risks. Even unpredicted external events can hinder your business processes and put your business at operational risk, like breaking down of the transportation systems or if your supplier is unable to deliver the required goods on time.

Financial Risk

These risks are an outcome of your financial decisions in business. There are many reasons that will affect your business financially like the amount of debt owed by your business, the amount of credit offered to your clients and the time in which they are supposed to repay you. Also, if one of your stronger clients bankrupts and is unable to repay you, your business will face a financial risk.

If the firm in question is a multinational company or trades with foreign companies, then a change in interest rates and foreign exchange rates will also put your business at a financial risk.

Compliance Risk

Your company may be entitled to comply with many rules and regulations imposed by the government or by the industry you operate in. These may include regulations that are obligated by the Occupational Safety and Health Administration (OSHA) for employee protection, the Environmental Protection Agency (EPA) for environmental protection or by the national and local agencies.

Reputational Risk

Your company may be at a threat of reputational risk in case of any product failure, negative publicity or lawsuits. It takes a long time to build a good reputation for the company, which can be lost instantly due to a single careless mistake. In today’s age, social networking and the rapid development of communication puts the reputation of firms at stake as a single negative comment of a customer can spread across like wild fire, reducing the business of the company overnight.

Further reading: Corporate Governance | Audit | Performance Improvement

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