Types of Risks of an Entrepreneur

By

Vinay

Introduction

Entrepreneurs are handle different risks because they face a variety of risks while carrying out their business operations. Effective handling of risk ensures the successful growth of an Entrepreneur / organization.

Meaning

According to the ‘Oxford English Dictionary’, risk refers to “The possibility of something bad happening or expose to danger or loss”.

Types of Risks

Financial Risk

Financial risk is normally any risk associated with any form of financing. Risk is probability of unfavorable condition; in financial sector it is the probability of actual return being less than expected return. For example: non-payment by a customer or increased interest charges on a business loan.

Financial Risk include: Credit risk Inflation Cost risk

Market Risk

Market risk is the risk that the value of an investment will decrease due to moves in market factors. The four standard market risk factors are:

Interest rate risk (the risk that interest rate will change) Equity risk (the risk that stock prices will change) Commodity risk (the risk that commodity prices (for e.g. crude oil, copper, etc…) will change) Currency risk (The risk that foreign exchange rate will change)

Technology Risk
I i th e p ro ce ss o f t s m a n a g i g th e ri n sks a sso ci te d a w i i p l m e n ta ti n o f n e w th m e o te ch n o l g y i th e b u si e ss. o n n

Fo r e xa m p l : N e w Te ch n o l g y e o fa i u re s i m a n u fa ctu re l n d e p a rtm e n t.

Political & Economic Risk

The risk of loss when investing in a given country caused by changes in a country's political structure or policies, such as tax laws, tariffs (tax paid on import or export), expropriation of assets, or restriction in repatriation of profits.

Operational Risk

An operational risk is a risk arising from execution of a company's business functions. For example the breakdown of key equipment, human error and technical failure.

Environmenta l Risk

The risk associated with economic or administrative consequences of slow or catastrophic environmental pollution. For example: like disasters

Tools used for overcome from risk
ØR i sk ØRisk ØRisk ØRisk

A vo i a n ce (eliminate) d Reduction (mitigate) Transfer (outsource or insure) Retention (accept and budget)

Risk avoidance: Includes not performing an activity that could carry risk. An example would be not buying a property or business in order to not take on the liability that comes with it.

Risk reduction: Involves methods that reduce the severity of the loss or the likelihood of the loss from occurring. For example, Modern software development methodologies reduce risk by developing and delivering software incrementally.

Risk transfer: Outsourcing could be an example of risk transfer if the outsourcer can demonstrate higher capability at managing or reducing risks.

Risk retention: Risk retention is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained. Example: fire insurance.

Low Frequency

High Frequency

Less Severe Loss More Severe Loss

Risk retention

Risk reduction

Risk Transfer

Risk Avoidance

Thank You
By ,

Vinay

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