Explain the concept of business risk and its causes.
Or
An enterprise cannot escape from the presence of risk. If you are interested in carrying out certain
business, then what sorts of risk you may study in this context.
A business risk may be defined as the possibility loss due to some unforeseeable,
unpredictable and unfavourable event in future.
Business risks arise due to a variety of causes, which are classified as follows
(i) Natural Causes Natural calamities like flood, earthquake, lightning, heavy rains, famine, etc are beyond human control. They result in heavy loss of life, property and income.
(ii) Human Causes Human causes include such unexpected events like carelessness, negligence or dishonesty of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc.
(iii) Economic Causes These include uncertainties caused due to economic fluctuations such as Changes in demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc. Financial problems like rise in interest rate and higher taxation, etc also come under economic causes as they raise the cost of operation of business unexpectedly.
(iv) Other Causes These are unforeseen events like political disturbances, mechanical failures, fluctuations in exchange rates, etc which leads to the possibility of business risks.