10 Types of Business Risks and How to Manage Them

1.  Risk of compliance A compliance risk is a risk to a company's reputation or finances that's due to a company's violation of external laws and regulations or internal standards.  A compliance risk can cause a business to lose customers or pay severe fines. For instance, if workers at a manufacturing company don't follow safety rules set by the government when building machines, their actions may pose a compliance risk for the business. 

2.  Legal hazard 

A specific kind of compliance risk is a legal risk when a company doesn't follow a government's rules for businesses. Legal risks can lead to costly lawsuits and a bad reputation for businesses. There are a few different kinds of legal risks for businesses: Risks associated with contracts: A breach of a business contract's obligations or liabilities is a contractual risk. Dispute risks: A dispute risk happens when a legal conflict with a customer, stakeholder or community member interrupts a business' processes.

Risks from regulations: A company's license to operate could be revoked by a government regulator, which is a regulatory risk. For instance, a factory's reputation could suffer among customers, stakeholders, and members of the community if it fails to comply with pollution or hazardous waste regulations.

 3.  Strategic hazard 

A strategic risk occurs when a company's business strategy is faulty or its executives fail to follow a business strategy at all.  Due to strategic risks, a company might not be able to reach its objectives. Example: If a pharmacy chain positions itself in its market as a provider of low-cost prescriptions and a competitor begins selling prescriptions at a lower rate than the pharmacy chain, it puts the pharmacy chain at a strategic risk of losing profits to a competitor.

 4.  Risk to one's reputation A risk to a company's reputation jeopardizes its standing or public opinion. Risks to a company's reputation can lead to lower profits and a loss of shareholder confidence. For instance, a story about a clothing company printing an offensive image on a sweatshirt goes viral on social media, resulting in a flurry of negative media coverage. The negative press harms the company's reputation and reduces sales

5.  Risk in the operations When a company's day-to-day operations threaten to decrease its profits, this is called operational risk. Companies may be exposed to operational risks as a result of internal systems or external factors. Some specific types of operational risks are as follows: Errors made by employees: If employees make big mistakes at work, it could hurt a company's operations. Damage to assets: A natural disaster can damage a company's physical assets, which is an operational risk.

 External fraud: When a company is the victim of external fraud, such as a third-party theft, the theft poses a risk to the company's operations.

6.  Human danger Human risks in business can arise from employees' failure to perform their essential duties in the workplace.  Human risks can be caused by things employees can't control, like health problems, or by things they do intentionally, like steal or fraud. When a business faces human risks, it can experience a loss of profits.

 For instance, employees who abuse alcohol may commit errors at work, which may result in lower productivity. If alcohol abuse results in an injury at work, the reduced productivity could result in a loss of profits for the company or even put it at risk in court.

 7.  Security risk

 If a company does not develop or implement cybersecurity strategies, it could expose itself to a security risk. A company's finances and reputation may be jeopardized by inadequate security updates, inadequate software testing, and inadequate employee training. For instance, if an insurance company has a weak password policy for its employees, this could be a security risk for the business. This policy could be used by a hacker or a resentful employee to release sensitive data, which could have a negative impact on profits or the company's reputation.

 8.  Financial risk

 When a company doesn't take care of its debts or plan its finances, it runs the risk of running into financial trouble. Changes in the market or losses can put a company's finances in jeopardy. For businesses, there are a few different kinds of financial risks: Currency risk: When conducting business on a global scale, a company may face currency risks due to the potential for the value of a foreign currency to decline suddenly. Default risk: Taking out a business loan with greater interest than a company can afford can put a company at risk of defaulting, or not paying, the loan.

 Liquidity risk: A company faces a liquidity risk when it can't quickly convert its assets into cash.

 For instance, a marketing company takes out a loan with a high interest rate in the hopes of expanding its clientele, but the company does not expand as rapidly as the executives anticipated. The loan's high interest rate puts the marketing company at risk of defaulting on the loan, which may negatively impact the company's financial operations.

9.  Risk of competition When a competitor gains a larger share of the market for a product or service, there is a risk of competition. It is sometimes referred to as a "comfort risk" because it can occur when executives of a company become so satisfied with the performance of the business that they neglect to continuously improve the products or services offered by the business. For instance, printers are sold by Business A. When a competitor, Business B, uses technological innovations to sell printers with more capabilities to Business A's customers, this could pose a threat to the competition. 

10.  Physical danger Threats to a company's physical assets, such as its employees, buildings, and equipment, are known as physical risks. Causes of physical risks can include damage to buildings from a fire or natural disaster and lack of training on proper equipment use.  Businesses may need to pay for repairs to physical assets because of physical risks.

 A building that houses a newspaper staff and a printing plant is owned by a media company. The building can be prone to fires if employees of the printing plant fail to properly inspect and maintain printing equipment.  The building, its machinery, and the employees of the business could be put in danger if inspections and maintenance aren't done regularly.

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