Question

PLEASE ANSWER IN DETAIL:

There are a lot of risks that a typical firm can be impacted from. Determining these risks, and how to best mitigate them is often a large task. How might a firm identify the risks, assign weights or likelihoods, and then reduce the impact as their normal course of business?

Answer 1

Business can always be a threatening occupation with different kinds of risks. Depending on the level of risk involved, some of them may cause the business to shut down, while others may account for serious damage which might take more time for the business to recover from such catastrophe.

IDENTIFYING THE RISKS INVOLVED IN A BUSINESS:

The main type of business that a business can face are:

1. Physical Risks: The business premises and employees might face the physical risk. Fire or explosion is common risk in case of business premise, while for the later accidents that might occur in the office or factory are typical risks.

2. Dangerous Material Risk: The materials used in the business which are hazardous can be also be a risk. Accidents may occur frequently.

3. Situational risk: Business can face the risk of natural disasters. It is better to take into consideration of natural calamities for that particular location, that had occurred previously.

4. Workplace Risk: Some of the employees may face alcoholic and in some situations even the drug abuse, from the co-workers.

5. Obsolescence Risk: There is a rapid change and update in technology. The timely update of the machinery is also necessary in order to suppress the risk of obsolescence.

6. Strategy risk: Each strategy risk is related to the organization's business objectives. A well planned strategy helps to to generate high profits.

ASSESSING THE RISK:

After the identifying the risks, the next step is to prioritize them.

Create a probability scale of purpose for risk assessment.

such as,

• Very likely to occur.
• Some chance of occurrence.
• Small chance of occurrence.
• Very little chance of occurrence.

HOW TO REDUCE THE IMPACT OF SUCH RISKS:

INSURANCE: Insuring against the potential risks is the basic safeguard in managing the risk. Almost all the business risks are insurable. For instance, fire insurance, loss of stock insurance, loss of profit insurance, etc,.

The extent of insurance coverage depends upon the nature of business.

RISK PREVENTION: It is always better to prevent the risk. Formulate plan for emergency scenarios.

CONCLUSION:

Though business risks are plenty and their consequences can destroy the business, they can be insured, to prevent and reduce their effect if they occur.