2. Meaning of Business Risk
Risk means possibility of loss. In
business, risk is unavoidable. The term
‘business risks’ refers to the possibility of
inadequate profits or even losses due to
uncertainties or unexpected events.
3. Types of Business Risk
Business enterprise usually face two
types of risk ;Speculative and pure.
Speculative risk involves both chance for
a gain or loss. Such risk arise due to change
in the market conditions like fluctuations in
demand and supply, change in tastes and
habits of customers.
Pure risk involves the possibility of loss
or even no loss. Fire, theft, earthquake,
strike, etc... are example of pure risk
5. business risk arises due to uncertainties
By uncertainty we mean lack of
knowledge about what is going to happen
in the future. Eg. Natural calamities,
changes in Govt. Policy etc..
6. risk is an essential part of every
business
Risk is inherent in every business.
Business can’t totally avoid risk although
the degree of risk may differ from
business to business. Risk can be
minimised but, cannot be avoid.
7. Degree of risk depends mainly up on the nature
and size of business
Nature of business( volume of
production and sale ) very much
determine the degree of risk. Large scale
business had more risk than small scale
business.
8. Profit is the reward for risk taking
Risk and gain are two sides of the
same coin. No risk, No gain, is an old age
principle, is applicable to all kinds of
business. Greater the risk, more is the
reward.
9.
10. Natural causes
Human beings have little control over
natural calamities like flood, earthquake,
lightning, heavy rains, famine, etc. These
result in heavy loss of life, property and
income in business.
11. Human causes
Human causes include such
unexpected events like dishonesty,
carelessness or negligence of employees,
stoppage of work due to power failure,
strikes, riots, management inefficiency,
etc.
12. Economic causes
These include uncertainties relating
to demand for goods, competition, price,
collection of dues from customers, change
of technology or method of production,
etc. Financial problems like rise in
interest rate for borrowing, levy of
higher taxes, etc., also leads to loss.
13. Other causes
These are unforeseen events like
political disturbances, mechanical failures
such as the bursting of boiler,
fluctuations in exchange rates, etc., which
lead to the possibility of business risks.
