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Definition of risk
Risk is defined in terms of uncertain events which may have positive or negative effect on the project
objectives.
The risk is the possibility of loss.
Risk is an uncertain event or condition that, if it occurs, affects at least one project objective

Risk is the possibility of deviations from expectations that can cause harm.
Risk is a possibility of an event that deviates from what is expected, but this deviation is only seen when it
has taken the form of a loss.
Risk is defined as the probability of an event and its consequences.

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What is Risk Preference?
Risk Preference is one’s tendency to choose either a risky or less risky option. Entrepreneurship generally
entails a certain degree of risk-taking. As such, entrepreneurs understand that they must be willing to take a
risk in pursuit of potential profits
❑ Risk-Seeking Preference : The risk-seeking preference applies to investors who are willing to take
increased risks to achieve higher-than-usual returns. It is necessary to weigh all the factors associated
with the risk and assess these risks against the probabilities of occurring in this type of risk preference.
Such actions allow the decision-maker to check if the risk is worth the chance.
❑ Risk-Averse Preference : Individuals who do not want to take any risk are called to have risk-averse
preferences. Such people always tend to make safer investments instead of taking an opportunity to
invest in high-risk investment with the probability of failure.
❑ Risk-Neutral Preference : Investors with risk-neutral preference do not care about the risks associated
with the decision-making. They are only concerned about the final result. A risk-neutral individual
chooses the projects that have the highest possible gains or returns without considering possible
outcomes.

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Risk management
Every business faces risks that could present threats to its success. Starting your own
business is full of exciting opportunities, but it also brings a certain level of risk.
Entrepreneurship is a risky, and it's essential to manage those risks if you want your
business to succeed. Any organization must have effective risk management.

Risk management focuses on identifying and evaluating risks for the project and
managing their chances to minimize the impact on the project. There are no projects
without risks because there is an infinite number of events that can have a negative effect
on the project. Risk management does not refer to the elimination of risk, but the
identification, evaluation, and management of risk.

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Definitions of risk management
❑ Risk management is a systematic method of identifying, analyzing, treating and monitoring the risks
that are all involved in any activity/ process.
❑ Risk Management is a means of dealing with uncertainty – identifying sources of uncertainty and the
risks associated with them, and then managing those risks such that negative outcomes are minimized
(or avoided altogether), and any positive outcomes are capitalized upon.
❑ Risk Management refers to the practice of identifying potential risks in advance, analyzing them and
taking precautionary steps to reduce the risk.
❑ Risk Management is “a systematic way of looking at areas of risk and determining how each should be
treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining
their impact, and developing appropriate management responses”
❑ Risk Management is the art and science of reasoning about what could go wrong, and what should be
done to reduce those risks in a profitable manner.
❑ Risk management is the procedure of using activity methods and tools for controlling these risks.
❑ Risk management is the process of identifying, assessing and controlling threats to an organization's
capital, earnings and operations. These risks stem from a variety of sources, including financial
uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural
disasters.
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Types of Risks in Entrepreneurship
Most entrepreneurs are risk-takers by nature, and creators of unique product that does not exist in the
current market. On a personal level, many entrepreneurs take big risks to leave stable jobs (and sometimes
their own money) into launching a business. For entrepreneurs, there is no guaranteed monthly income and
no guarantee of success.
Successful entrepreneurs tend to be willing to take chances, as pursuing a new business venture often
involves taking calculated risks based on extensive research. Such research takes a great deal of time and
energy but allows potential business owners to better understand several types of entrepreneurial risks.

There are numerous types of risk in entrepreneurship, but the most common ones include financial risk,
legal and regulatory risk, market risk, competitive risk, and operational risk. Understanding each of these
types of risk is essential for developing a successful business strategy and mitigating potential losses. Major
form of risk which an entrepreneur needs to take care of are as discussed below :

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Types of Risks in Entrepreneurship
1. Economic Risk
Economic risk may result in gain or loss because of changing economic conditions.
Economic risk: risk associated with the possibility of loss due to a change in the economy.
Economic risk is the risk faced by a firm that has a foreign branch or investment in a foreign country
because of factors such as exchange government policies, change in government, decrement in the credit
valuation of foreign investment or important development in the foreign exchange affecting the business of
the organization.
2. Legal Risk
This type of risk can arise from a lack of knowledge or understanding of relevant laws, regulations, and
industry standards. Entrepreneurs have to comply with a significant number of legal requirements to start
their businesses.
To mitigate legal and regulatory risk, entrepreneurs and business owners must have an understanding of all
relevant laws and regulations that apply to their business operations as well as any potential changes that
may come into effect in the future.

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Types of Risks in Entrepreneurship
3. Financial Risk
Financial risk is the likelihood of losing money on an investing or business deal. Further more common financial risks comprise credit
risk, liquidity risk, and functional risk. Financial risks can arise from a variety of sources, such as changes in market conditions,
economic downturns, and unexpected expenses. These risks can have a significant impact on your business, affecting its cash flow
and profitability.
An entrepreneur will need funds to launch a business either in the form of loans from investors, their own savings, or funds from
family. Any new business should have a financial plan within the overall business plan showing income projections, how much cash
will be required to break even, and the expected return for investors. Failure to accurately plan could mean that the entrepreneur risks
bankruptcy, and investors get nothing.
To avoid the financial risks of a business, entrepreneurs must have a clear understanding of your market and business before you start
your entrepreneurial journey. You must do deep market research and formulate a logical business plan based on your industry. Your
business plan must include all possible costs associated with starting your business. It must also consider the funds required for the
survival of the business for the first few months. Alongside the costs, you must set aside a contingency reserve for unforeseen
situations such as market trends, unexpected competition, development of new technology, etc. You must keep a careful check on your
finances and take control over areas that result in resource wastage.
There are several strategies you can use to minimize financial risks, including Building an emergency fund, Diversifying your revenue
streams, Monitoring cash flow and Seeking advice from financial experts.By taking a proactive approach to minimizing financial
risks, you can ensure the long-term financial stability of your business and increase the chances of success.

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Types of Risks in Entrepreneurship
4. Technology Risk
Innovation and new technologies have the potential to disrupt the marketplace, and entrepreneurs take on
technological risks when launching a business. Technological risks can include privacy and security
concerns, such as the potential for a data leak or IT breach, as well as technological risks related to money
if the company needs to invest heavily in technology to remain competitive in the market.
5. Competitive Risk
An entrepreneur should always be aware of its competitors. No matter what industry you’re in, there is
always the risk of potential competition from other businesses, as well as changes in the economy or shifts
in consumer preferences that could affect business operations.
To mitigate competitive risks, entrepreneurs must have a thorough understanding of their target market and
stay up-to-date on industry trends to ensure that they remain competitive within the marketplace. By staying
informed about changing customer needs, and doing regular analysis of competition, entrepreneurs can
minimize their exposure to costly losses due to encroaching competition or changing customer demands.

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Types of Risks in Entrepreneurship
6. Market Risk
Market risks are an unavoidable part of entrepreneurship. These risks can arise from external factors such
as changes in the economy, shifts in consumer preferences, or even competition from other businesses.
Many factors can affect the market for a product or service. The ups and downs of the economy and new
market trends pose a risk to new businesses.
It is essential for entrepreneurs to understand these potential market risks and develop strategies for
mitigating them.
Entrepreneurs should perform a market analysis that assesses market factors, the demand for a product or
service, and customer behavior. Entrepreneurs must be well aware of industry and potential customers. His
products must be designed as per the requirements of your target market. And must know about the existing
and potential competitors in your industry and identify ways to set your business apart from them.
Innovation and hands-on approaches can help you stay quick on your feet and capture the attention of your
customers . Entrepreneurs must keep your business plans flexible and adaptive to market changes.

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Types of Risks in Entrepreneurship
7. Operational Risk
Apart from the external risks, entrepreneurs are also prone to the risks that lie within the business.
Operational risks occur when an entrepreneur follows a faulty operational system for their business and
arise from a variety of issues such as inadequate processes, lack of resources or expertise, or inefficient
management practices.
Operational risks refer to the risks associated with the day-to-day running of your business, such as supply
chain disruptions, equipment failures, and cyber-attacks. These risks can have a significant impact on your
business operations and profitability.
When operational risks are not managed properly, they can lead to costly mistakes which could have
serious consequences for the business. To mitigate operational risk, entrepreneurs must understand all
relevant laws and regulations that apply to their operations and must have a good connection in the market
with your suppliers and vendors. You must choose your suppliers carefully and establish a personal
connection with them. It can help you manage your procurement and supply chain issues efficiently. Your
operations must be data backed and planned to keep a contingency plan at hand for situations that may not
work out as per your plans. as well as develop strategies for monitoring compliance with these
requirements. They would also benefit from hiring a strong team of advisors and executives who can help
inform their decisions.

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The Risk Management process
1.Risk identification : The aim of this step is to develop a comprehensive list of future events which could
be uncertain, but are likely to have an impact (either positively or negatively) on the achievement of the
objectives- these are the risks. Risk should be identified and addressed as early as possible in the project.
The tool for recording all the risks identified during the project is the risk register, which is stored in the
central server of the project.
There are several tools are used to identify risks are :
List of risks from history (reviewing historical data)
List of possible risks.
Expert judgment, using brainstorming
The status of the project, which includes progress reports.
Classifying risks by categories.

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The Risk Management process
2. Risk analysis : Risk analysis involves developing an understanding of the risk and provides an input to
risk evaluation and to decide on whether risks need to be treated.
Risk analysis involves examining how the project’s results and objectives may change due to the impact of
the risk event. establishes the potential impact of each risk and its likelihood of occurrence.
After identifying the risks, they are analyzed to identify the qualitative and quantitative impact of the risk
on the project, so that appropriate measures can be taken to mitigate them. The following guidelines are
used to analyze risks: the likelihood of risk occurrence, the impact of the risk, the exposure to risk or risk
score and the period of occurrence of the risk.

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The Risk Management process
3. Risk evaluation : Conducting a risk evaluation is a critical step in the risk management process for
entrepreneurs. It involves evaluating the likelihood and impact of potential risks on your business. A risk
evaluation helps you identify the areas where your business is most vulnerable and prioritize your risk
management efforts. There are several methods for conducting a risk evaluation, including brainstorming
sessions, SWOT analysis, and decision trees.
The key is to use a systematic approach that covers all areas of your business and considers both internal
and external factors. During a risk assessment, you'll consider the potential impact of each risk on your
business, including financial, operational, legal, market, and reputational impacts. By conducting a
comprehensive risk evaluation, you can identify the risks that pose the greatest threat to your business and
develop a plan to mitigate or manage them effectively.

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The Risk Management process
4. Risk treatment : is the action taken in response to the risk evaluation, where it has been agreed that
additional mitigation activities are required.
Risk treatment is a cyclical process where individual risk treatment (or combinations of treatments) are
assessed to determine if they are adequate to bring the residual risk levels to a tolerable or appropriate level.
If not, then new risk treatment are generated and assessed until a satisfactory level of residual risk is
achieved.
Controls and mitigating actions are required for all risks. Where risk treatment is required, it involves
selecting one or more options for modifying the risk and implementing those options. Risk treatment is
required when the residual risks remain unacceptably high, or where there is a desire to bring this risk
down, with regard to the company risk appetite. Once implemented, treatments provide or modify the
controls by develop alternatives and respond to risks.

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The benefits of risk management.
Risk management is a planned and a structured process aimed at helping the project team make the right
decision at the right time to identify, classify, quantify the risks and then to manage and control them. The
aim is to ensure the best value for the project in terms of cost, time and quality by balancing the input to
manage the risks with the benefits from such act.
■ Risk management understanding allows management to engage effectively in dealing with uncertainties
(risks) and opportunities that relate to and enhance the organization's ability to provide added value.
■ Risk management when applied systemically helps to control those critical elements which can
negatively impact project performance
■ Increases the range of opportunities
■ Recognize and manage the full range of risks it faces.
■ Decrease negative shocks and increase gains.
■ Better quality data for decision making(the management can ensure that decisions are made in light of
the most recent data).

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The benefits or advantages of risk management

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Thanks

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