Business risk arises from uncertainty in a company's internal or external environment and can negatively impact objectives. It takes various forms like new technologies or changes in economic policy. Risks come from internal sources like accidents or externally from political, economic, social, natural, and technological factors. Companies analyze risks, identify potential impacts, and design strategies like insurance, diversification, and research to manage risks and help decision-making, profits, and goals. However, measuring business risk is difficult due to its complex, uncertain, and variable nature.

1. Shifali garg
MBA
NCCE
RISK IN BUSINESS
ENVIRONMENT

2. BUSINESS ENVIRONMENT RISK
 Risk is the probability of loss or damage to a
business firm
 Business Risk can be defined as any unfavorable
change in internal or external component of
business environment which may impose threat in
achieving business objectives. …Arthur M. Weimer

3.  Business risk can take various forms like
Egs: Technological up gradation may render the existing
plant obsolete.
 Sudden change in economic policy of the
government may pose threat to the business unit like
ban on the product, increase in the tax rate on the
product , decline in the subsidies and concessions to
the product, liberalisation of imports and thus
negatively affecting the sale of domestic products,
entry of strong competitor, war with other nations etc.

4. TYPES OF BUSINESS ENVIRONMENT
RISK
 Internal Risk: loss by theft, fire, accident, sudden failure of machinery
and equipment.
 Micro level risk: Disruption in supply of inputs
 Increase in competition
 Change in likings ,tastes and preferences of customers
 Problem with market intermediaries
 Public resentment.
Macro level risk : It arises due to unexpected changes in the various
components of macro environment of business.

5.  POLITICAL RISK : Resulting from political
changes
 SOCIAL RISK : From Social Attitudes eg:
lifestyle , beliefs or increase in urbanization
etc.
 NATURAL RISK : Natural Disasters
 ECONOMIC RISK : Economic Changes like
recession, weak financial institutions , high
rate of money expansion etc.
 Technological Risk
 Global Risk: Economic recession in America
in 2008-09

6. COUNTRY RISK ANALYSIS
Country risk refers to the likelihood that changes in the business environment
adversely affects the operating profits or the value of the assets in a specific
country . Therefore a collection of risks associated with investing in a
foreign country is called as country risk.
Country risk analysis is basically concerned with the performance of an
economy and the behavior of the Government and the institutions which
determine the Business Environment.
Thus, it denotes perception of outside world towards a particular nation.
It effects the business at macro Level i.e. it effects all the business units in a
nation or all business units of a particular industry in the whole nation.

7.  It may arise due to following factors:
Mass riots and civil wars
Political instability
Widespread corruption
Change in economic policies
Bad industrial relations
Increase in tax rates
Huge deficit in government budget
Weak financial and market institutions
Rigid labour laws and poor work culture.
Poor relations with other countries
Weak infrastructure like shortage of power, lack of efficient
infrastructure

8. POLITICAL RISK ANALYSIS
 Political environment is set by the political system, the
constitutional framework, external political relations,
functioning of the government, role and behavior of various
political pressure groups.
 The risk that an investment`s returns could suffer as a result
of political changes or instability in a country.

9. TYPES OF POLITICAL RISK
 Macro Level Political Risk: It effects all business units in a
wide region or all business units of a particular industry in
a wide region. It may arise due to following factors:
I. Political Instability
II. Bureaucratic hurdles
III. Widespread corruption
IV. Poor law and Order Situation
V. other factors : slow judicial process
Poor implementation of legislations

10. Micro level Political Risk: It is project specific risk . It
effects particular business unit or all industries in
a specific region.
Eg: Nano car project in West Bengal faced strong
opposition from local public and regional political party
leading to closure of proposed Nano manufacturing
unit in West Bengal and its shift to Gujarat.

11. HOW A COMPANY MANAGES
ENVIRONMENT RISK? Or Risk
Management Process
 Identifying the Risk
 Identifying the possible effects of various risks
 Designing appropriate strategies
 Monitoring the effectiveness of risk management
Process.

12. Methods Of measuring
Environmental Risk
 Strategic issue analysis Method
 Structured Expert opinion/Questionnaire method
 Weighted Rating system
 Econometric Techniques
 Risk premium on Interest
 Risk Benchmarking
 Creditworthness

13. Methods of handling Business
Risk
 Market research and scientific Forecasting
 Technological R and D
 Entering into joint venture agreements
 Social responsibility measures
 Insurance policy
 Risk diversification
 Effective inventory control
 Be patient in case of Sudden change in environment
 Hedging
 Overcoming Cultural Risk

14. Significance of risk management
 Helps in decision making
 Helps in Minimizing the amount of loss due to
risk
 improves the probability of achieving business
goals
 increases sales and profits of the business units
 helps to face competition and maintain market
share of business unit.

15. Difficulties in measuring Business
Risk
 very complex task
 Lack of standardized technique
 lack of experts
 Uncertain and uncontrollable
 Insufficient Availability of reliable and Correct
information