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CHAPTER:
BUSINESS RISKS
Question #: 1
What is a Business risk? Describe the major kinds of business risks.
List and explain the business risks
BUSINESS RISKS:
DEFINITION:
Business risk means uncertainty of the factors and possibility of
unfavorable conditions in business. It is the possibility of inadequate profits or even
loses due to uncertain future. Many of the expectations of a businessperson can go
wrong in real business. When his expectations fail, a businessperson can lose his
investment or even lose his personal wealth. Profit is in fact, the reward for taking
risk in a business.
MARKETING RISKS:
1. RISK OF FAILURE OF NEW PRODUCT:
Risks are involved in machines and new products. The probability of success
for any new product idea is not a very serious risk but the risk of failure of a new
product is disastrous because it is possible that the consumers will have no interest in
the new product. Every program of new product may be the start of destruction
because introduction of new product is a very risky matter.
CREDIT RISKS:
Present day business rests on foundation of credit. The producer sells
goods on credit to wholesaler who gives credit to retailers and the retailer gives credit
to the creditors having monthly incomes. Thus, the risk of credit or bad debts is there
if the debtors do not pay the debts and become defaulters for any reason.
INVENTORY RISKS:
The producers/ manufacturers should always keep optimum inventory
neither more nor less and use full production capacity so that the required quantity of
finished goods produced to meet market demand. However, all efforts should be into
sell out the finished goods as early as possible by making suitable contacts with the
prospective wholesalers and sole distributors.
EQUIPMENT RISKS:
New technologies are coming up every now and then hence the producers have
to make suitable arrangements to adopt these technologies to produce model and
latest types of products to meet competition in the market. However, it requires large
investment to purchase new equipments and machines and to dispose of the old ones.
This is indeed a great equipment risk.
ACCIDENTAL RISKS:
Breaking of machines theft of raw material or losses due to fire and natural
calamities cannot control by producers. Such risks always exist.
GOVERNMENT RISKS:
The government changes its commercial, industrial policies, which may be
favorable or unfavorable to producers and businesspersons. Specially, the laws of
taxation, labor and price export and import duties etc may cause positive or negative
effect on executives/ producers. Hence, it is always advisable that government should
frame its policies in consultation with producers.
ANSWER!
Question #: 2
What are the causes of business risks?
ANSWER:
CONCLUSIONS:
Business risks cannot avoid completely. Without risk, there is no business.
Reasonable care and precautions can reduce risk. Insurance can reduce the effect of
loss. By paying a small premium for insurance, the business can protect itself against a
heavy risk. Insurance is actually a method of sharing a risk by a large number of people.
ANSWER!
Question #: 3
What are the characteristics of Insurable risks?
ANSWER:
Question #: 4
List the name of the uninsurable risks.
ANSWER:
UNINSURABLE RISKS:
Some of the uninsurable risks are as follows.
1. Fall in his demand for goods produced.
2. Risk of loss is in business.
3. Unfavorable changes in prices.
4. Loss due to sea perils in foreign trade.
5. Government taxation, business and industrial policies are adverse.
6. Natural disasters (flood earthquake, heavy rain).
ANSWER!
Question #: 5
How can these risks reduced or avoided?
ANSWER:
METHODS TO REDUCE OR AVOID BUSINESS RISKS:
Following are the method to minimize business risks.
1.
2.
3.
4.
5.
6.
5. FORECASTING:
Now a days conducting business and to produce goods is not as simple
and traditional as eager of goats and sheep. The businesspersons and producers
have to acquire minute-to-minute information about market fluctuations and
changes in the tastes and fashions of customers. Continuous market survey,
research and proper foresight of business changes can help to avoid many
business risks.
6. SAFETY MEASURES:
Precaution is better than cure should the policy to follow by the present
day producers and businesspersons to avoid all business risks. For example, to
avoid robberies security guards should appointed and fire extinguishers should
keep in factories to extinguish fire etc.
ANSWER!