Want to know about Business Risk?

Business risk is defined as the possibility of occurrence of any unfavorable event that has the potential to minimize gains and maximize loss of a business. In simple words, business risks are those factors that increase the chances of losses in a business and reduce opportunities of profit.

Characteristics of Business Risk

1. Business risk arises due to uncertainties. Uncertainty is when it is not known what is going to happen in future. Examples of uncertainties that affect a business are change in government policy, change in demand, change in technology, etc.

2. Risk is an essential part of the business. Risk involved plays a crucial role in business operations. The risk involved in can be reduced to some extent but it cannot be completely eliminated.

3. Every business has risk which varies in severity based on the type of business. For example a large Corporation or business will carry more risk as compared to small scale businesses.

4. Businesses take risk with the motive or expectation of earning profit because it is considered more the risk higher is the amount of profits from operations.

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Causes of Business Risk

 1. Natural Causes:- Natural causes are the causes those which arise due to interference of nature. Humans and businesses do not have a control over the natural causes. These include natural calamities like earthquake, tsunami, tornado, famine, floods and drought, etc. Humans and businesses do not have a control over the natural causes

2. Human Causes:- The human causes of business risk arise due to the loss of business that arises from changes in customer preferences, employee mindset, agitation by workers, negligence by employees, strikes and lockouts.

3. Economic Causes:- Economic causes of business risk arise from changes in the different economic factors such as increasing competition, changing market conditions, increase in price of raw materials, production cost.

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