THE IMPACT OF RISK ON BUSINESS

RISK MANAGEMENT

Risk management is the systematic scientific identification, evaluation, and prioritization of risks of
adverse health effects resulting from human or environmental exposure to hazardous agents or the
economical application of resources to minimize, monitor, and control the probability and or impact
or the adverse events (Haschek and Rousseaux’s ,2013).

According to (Chapman & ward,1997) it is the process by which firms identify, measures, prioritise
and mitigate the adverse effect of uncertainties. Risk Management can be grouped as a two-step
process, the first step being the determination of risk that exist in potential investment and the
second handling that risk wisely in a way that is best suited to the objectives of the investment
(Small bizdaily, 2013).

BUSINESS RISK

Is the possibility of inadequate profit or even losses due to uncertainties. For example changes in
the taste and preference of consumer, changes in government policies among others. Thus business
risk implies the instability in profit or danger of losses and the event that could cause a risk due to
unforeseen event in the future, which by virtue causes business to fail. For example, an owner of a a
transport business may face different risks like in production,risks due to irregular supply of raw
materials, machinery breakdown, labor unrest, etc. In marketing, risks may arise due to different
market price fluctuations, changing trends and fashions, error in sales forecasting, etc. In addition,
there may be loss of assets of the firm due to fire, flood, earthquakes, riots or war and political
unrest which may cause unwanted interruptions in the business operations. Thus business risks may
take place in different forms depending upon the nature and size of the business

IMPACT RISK

Is an estimate of the potential losses associated with an identified risk. It is a standard risk analysis
practiced to develop an estimate of probability and impact. Some examples of business risk include,

 Strategic Risk
 Economic Risk
 Operational Risk
 Competitive Risk

Some factors affecting business risk of a firm are as follows:

 Variability in demand
 Variability in Selling Price
 Uncertainty of Input Cost
 Ability to price adjustment
 Speed of technological changes
IMPACT OF RISK ON BUSINESS

Nobody said business was going to be easy. Unfortunately, every business faces challenges, or risks.
Whilst business risks can never be entirely eliminated, being aware of what these risks are and
where they come from and their impact on businesses can help better manage their effect and steer
a course to business success.

Business risks are circumstances or factors which can have a negative impact on the operations or
profitability of your business. Business risks are generally classified into two major risk factors –
internal factors (circumstances or events within your organisation) or external factors (those in the
wider business arena).

INTERNAL VIEW

 Stability
 Organisational structure
 Politics and Management
 Resources
 Innovation
 Incentives

STABILITY

The capabilities and attitudes of business in managing their finances in other to meet their debt
responsibilities, obligations and return to capital to their investors. Thus businesses with financial
background resulting from their strategic plan can grow their profits more easily than those which
are not. Furthermore investors, lenders, and management will be more willing to engage with and
invest in such financially stable organisation.

ORGANISATIONAL STRUCTURE

The success of every business organisation is dependent on how it has been well structured. It is
relatively important that a cohesive and efficient structure is established, maintained and sustained
If businesses wish to function smoothly, carry out their strategic objective goals both effectively and
efficiently. When assessing and analysing how organisational structure might pose a risk to ones
business, as an owner, evaluate job positions, hierarchy and lines of communications. Also a
consideration of the organisational structure must be put up high in determining whether the
structure is in order and clearly defines all job positions and descriptions working in collaboration
with one another.

POLITICS AND MISMANAGEMENT

The degree of effects of internal company politics in businesses cannot be overlooked particularly in
a situation where businesses have familiarised. Family business can be debilitating and the effect of
this that there is total diversification of focus on the part of management and staff: not on the
market and the job at hand but on the internal happenings. For example a working environment
where favouritism and nepotism has become the order of the day is more likely or prone to chaos as
there is a tendency of the organisation deviating from its vision, mission and core values. When
organisations take their eyes off the ball, it ultimately open the door to competitors stealing large
market shares of the of these organisation. As proper planning prevents poor performance,,
mismanagement including lack of proper control of finances, marketing, labour and all other factors
of production will result in increased cost for the business which affects the organisation bottom
line.

RESOURCES

The level of resource endowment of a company of an organisation is very key in determining its
success or failure. Resources are available source of wealth, a new or reserve supply that can be
drawn upon when needed. Resources from the economic point of view are used to satisfy wants but
in its nature are very scarce and thus have alternative uses. Therefore available resources must be
best out to use to obtain the maximum benefit. For example inadequate financial and competent
human resource will make it difficult in achieving organisational goals and objectives.
Notwithstanding the fact that lacking resources impinge on the nature and scope of the work. It can
also impact significantly on staff morale. Imagine you have a task to complete yet have no ready or
available materials to work with.

INNOVATION

Innovation looks at the metamorphosis, the bring up of new ideas , creative thoughts, new
imagination in the form of device or methods. Many a time, it is viewed as the application of better
solutions that meet new requirement, unarticulated or existing market needs. Innovation is crucial
to the continuing success of any organisation. It fulfils the going concern principle as it ensures that
organization operational perpetuity. Innovation creates a competitive advantage as it keeps the
business one step ahead of its rivals in every aspect of the business whether it relate to product
development, promotion, marketing, or staff welfare .Lacking innovative skills can pose a risk to the
business success as the company become stagnant, staid, and irrelevant to the dynamics of the
changing market place.

INCENTIVES

It serves as tool that motivates someone to do something. Incentives stimulates , spurs and
encourage people to give their maximum best. Incentives comes in various forms that is :
compensation, recognition, rewards and appreciation. Employee incentives play a significant role
employees organisations wants to keep as well as attract other employees to join the organisation.
Notwithstanding, incentives should be managed in such a way it do not create entitle employees as
well as demotivate them. However incentivising employees could be a business risk if perpetrated or
done wrongly. Therefore ensuring the right incentive and reward scheme for the business is very
paramount. For example it is worth determining whether group or individual performance bonuses,
production bonuses, and non-monetary rewards achieve the best results by reinforcing the
behaviour you wish to see in your staff
EXTERNAL POINT NOF VIEW

The emergence of external risk is due to various economic events that occur outside the
organisation itself, they are not as easily controlled and the business exposure cannot be forecast
with reliability. The impact include the following areas:

 Economy
 Political legal Factors
 Shareholders
 Technology

ECONOMY

The state of a country or regions in terms of production and consumption of goods and services and
supply of money. It also involves the careful management of available resources. The economy’s
nature whether it is boom or burst time. Which ever way, how the economy is performing impacts
or affects the business. All other things being equal a bad economy tends to pose more risk on
business activities of an organisation and the vice versa is true for equally efficient booming
economy. Because organisations may not have control over the economy at large, it becomes very
important understanding what directions can help manage the threats and the risk it comes along
with along side maximize the opportunities chanced upon

POLITICAL- LEGAL FACTORS

These also posses risk in its own. Countries where democratic system of leadership is practiced
poses less risk as compared to a a system of governance where there always political unrest. A
typical example is the recent drone bomb that hit Saudi Arabia Oil refinery. This has lead to the
increment in prices of crude oil. Also the civil war in Yemen has rendered most business collapsed,
homeless and insecured. In addition unfavourable government policies and legislation such as high
quota, tariffs and taxes poses risk to the survival of business as most business go to extinct

SHAREHOLDERS

These are part and full time owners of businesses. Shareholders interest in business may pose or
threatened the business. For instance as a business manager, your wanting to invest in any profits
for future may be at odds with company shareholder who wish to take value out of the business in
the form dividend. Greedy shareholders may used their business approach to focus on their personal
aggrandisement other than business wealth as this risk also impedes on the growth of a business

TECHNOLOGY

Technology is now ruling the world. In as much as it has aided us in our business activities, the
negative effects and risk associated with it is something that cannot be overlooked. The increment in
cyber fraud, hacking of accounts among others is on the alarming rate and it has lead to the
defrauding of many business. However if an organisation wishes to remain relevant, it is expedient
to monitor technological development in the organisation field of business and in the wider business
sphere.
Risk are inevitable in every business setting and cannot be eradicated totally and as such have great
impact on businesses both internally and externally when they are improperly managed.
Organisations must be proactive other than reactive and the application of quality circles to
managing risk effectively.