Business risk is the probability of losses or inadequate profits due to future uncertainties.
Nature/features/characteristics of Business Risk:
1. Arises due to uncertainties.
2. Essential part of every business.
3. Degree of risk depends upon the nature and size of business.
4. Profit is the reward of bearing risk.
Causes of Business Risk:
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 of Business Risk:
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.
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.