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Sixth-Semester-BE-Degree-Examination-June--July-2013-Management-and-Entrepreneurship-->View question

Define risk and explain its various types? - Pondicherry University -2015

From the "Risk Management and Insurance" 2015 paper of Pondicherry University.

Asked On2020-06-22 00:00:00 by:Divyanshu-Changkakoti

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Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters

Various types:
1. Strategic – One may consider the opening of a competitor in your niche a typical risk. Like the example above you can reduce it’s impact, as you would deal with any other competitor, by offering better service, product and experience. I had a client, unlike the previous example, that was negotiating a lease for a great space on a busy Vancouver street for his coffee shop. All the equipment was purchased, interior designer and staff in place but the leasing agent kept raising the asking price per foot. I took over the negotiations and realized there was an ominous problem – there had to be another bidder for the space. There was competition and it was none other than Starbucks. Needless to say they won over the spot. My client settled for the first space he could find that turned out to be inferior to the detriment of his start-up. He opened and closed within a year.

2. Compliance – You may not see this coming. This is often new regulations or legislation that will change the way you must do business. Vancouver cab owners are bracing for legislation that will allow Uber to move to Vancouver this fall. It could be a game-changer for the industry. Cab owners responded by automating their antiquated call systems.

3. Financial – There’s nothing worse than having completed that huge order and hoping that the client will pay you before the 30 day payment option you gave them. A start-up is not often funded properly to handle multiple accounts that take their time paying or not paying at all. A contingency fund will come in handy.

4. Operational – It sounds silly but my landscaper called the other day to tell me his mower broke down and could he use a weed eater to do my lawn – what? I’m not particularly loyal to this guy so found a company on Google that took care of me within an hour. Using broken equipment like this will take a business down without some backup plan. Imagine what could happen if your partner or key employee dies suddenly, an operational calamity.

5. Environmental – Besides the disaster scenario, there are many environmental issues that could put a hole in your wallet. In a climate change minded world people will shop around for environmentally friendly business owners. You must adapt or go broke.

6. Employee – A former car repair business I once used went out of business after the owner’s accountant absconded to Brazil with most of the money in his business. Ludicrous? Well it’s a true story and one that happens more than you think. A more typical scenario is a critical employee being injured at work without a backup to run his specialty program or machinery.

7. Political – This is a bit different than the compliance issue. Imagine your business is in a border state and NAFTA is being renegotiated. The fate of your entire operation could be tied to whether the agreement is ratified or not. I know many business owners in Canada who are biting fingernails hoping to keep the status quo.

8. Society – The societal landscape is constantly changing and one must adapt and have a plan in place when change knocks at your door. My wife only buys free-range eggs from our grocer. The thought of cramped chickens bred in boxes even has me cringing. Gluten free, organic and non-GMO are buzzwords that are changing the way we do business and shop.

Answerd on:2018-06-05 Answerd By:SaiKiran


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