Business Risk:
Business risk is the probability of losses or inadequate profits due to future uncertainties.
Nature/features/characteristics:
1. Arises due to uncertainties:
Business risk emerges from unpredictable factors like market fluctuations, economic conditions, and unforeseen events.
2. Essential part of every business:
No business can completely avoid risk, making it an inherent aspect of all commercial activities.
3. Degree of risk depends upon the nature and size of business:
The level of risk varies based on the industry, operations, and scale of the business.
4. Profit is the reward of bearing risk:
Businesses earn profits as compensation for accepting and managing various risks associated with their operations.
CausesÂ
1. Natural causes:
These are related to natural calamities, like earthquake, flood, draught, lightning etc. and can lead to heavy losses.
2. Human causes:
These are related to possibility of losses due to employees of the enterprise, like dishonesty, carelessness, theft, lack of loyalty etc.
3. Economic causes:
These are related to possibility of losses due to change in market conditions, like changes in the prices of raw materials, changes in the demand, supply conditions, changes in the prices of finished goods etc.
4. Physical causes:
These are related to the losses to physical assets of the business due to change, in technology, machinery failure, accidental loss of machinery by untrained employee etc.
Types:
1. Insurable risk:
These are the risks that can be recovered and are generally due to the natural and physical causes. Only pure risk is insurable.
2. Pure risk:
These are the non-insurable risks which cannot be recovered and are generally due to economic and human causes.
3. Speculative risk:
These are the risks having the possibility of gain or loss. Speculative risk is non-insurable.
4. Personal risk:
The risk of loss to life or health of people involved is called personal risk.
5. Property risk:
The risk of loss of physical assets of the business is property risk.