The types of risk involves in business is depends on the nature, size and other various factors. It is very complex to list out all risk associate activities and particular risk of business. We can group the business risk on different categories such as managerial risk, financial risk, compliance risk, operational risk and other risks.
Different types of business risk can be described as follows:
Different types of business risk can be described as follows:
1. Managerial risk
Managerial risk arises from managerial weakness. If management fails to make effective plan and policies then such risk affect the organization. Wrong estimate of demand and supply, poor management of employee grievances, biased and unfair business activities are some examples of managerial risk.
2. Compliance risk
The risk which arises from the frequently changed in laws and regulation related business are compliance risks. Business must obey the rules and regulations issued by governing authority. If such authorities changed the rules and regulation on against of business environment then such risks affect the business. Increasing tax and custom rate and prohibit business activities are the examples of compliance risk.
3. Financial risk
Financial risk is one of the major risks of business. It arises from various financial transactions. Non-payment by debtors on time, increased interest on business loan, shortage of working capital are the examples of financial risk.
4. Operational risk
Operational risk arises from weakness of people, internal process, system and external events. Business organization may suffer from different nature of operational risks. The causes of such risks are fraud, theft, human error fro employees of an organization. Sometimes internal process and used technology may create problem and incur loss in business. Problems arise in computer software, leakage of electricity, gas, water, different types of accidents are the possible causes and event of the operational risk.
5. Other risks
Many other risks can be seen in the course of business operation which affect the business performance. It is basically depends on nature and transaction of business. Basically in banking business, there are many risks related terminology is introduced and practiced. Following are the main other types of risks:
* Political risk
* Liquidity risk
* Market risk
* Credit risk
* Interest rate risk
* Foreign currency risk
* Health and safety risks