Business Risk
Candlefocus EditorBusiness risk may be either internal or external and can be caused by a number of factors such as changes in consumer tastes, advancements in technology, the level of competition in the industry, or economic and political forces outside the company’s control. Consumer tastes and preferences, for instance, can quickly evolve, rendering a company’s product or service obsolete or unattractive. Technology can also bring both business risk and opportunity—while it can improve and expand a company’s products and services, it can also be difficult to keep up with the pace of change and new developments. Competition can be fierce in some industries and a slow response to the competitive landscape can spell disaster for a business. Finally, external events such as laws, policies, and economic trends can shift quickly and can have a profound impact on a company’s bottom line.
Business risk must be managed carefully. Companies can utilize a range of plans, strategies, and products to reduce their risks. This can include the implementation of a strategic risk plan to identify and address possible sources of risk, transferring or sharing risk through the use of derivatives or insurance products, and financial strategies such as hedging. Companies may also consider diversifying their portfolio, as well as using data-driven tools and technology to identify potential sources of business risk and develop better solutions for dealing with them.
It is important for companies to recognize that business risk is an unavoidable part of doing business. While businesses cannot eliminate risk entirely, taking proactive steps to identify and manage potential sources of risk can help companies remain flexible and competitive in the face of changing markets, customer demands, and external events. Taking steps to mitigate business risk can help businesses and organizations protect their long-term stability and sustainability.