Types of Risks of an Entrepreneur

By

Vinay

IntroductionEntrepreneurs 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.

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

Meaning

Risk

Financial Risk

Market Risk

Technology Risk

Political & Economic

Risk

Operational Risk

Environmental Risk

Types of Risks

Financial RiskFinancial 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 riskInflationCost risk

Market RiskMarket 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

It is the process of managing the risks associated with implementation of new technology in the business.

For example: New Technology failures in manufacture department.

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 RiskAn 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.

Environmental RiskThe risk associated with economic or

administrative consequences of slow or catastrophic environmental pollution.For example: like disasters

Tools used for overcome from risk

Risk Avoidance (eliminate) Risk Reduction (mitigate) Risk Transfer (outsource or insure) Risk 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.

Risk retention Risk reduction

Risk Transfer Risk Avoidance

Low Frequency

HighFrequency

LessSevereLoss

MoreSevereLoss

Thank YouBy,

Vinay