Understanding and Types of Types of Risk in Business

In a business activity, risk is something that cannot be avoided. Risk is indeed a natural thing in business activities, even in whatever activities we do. For this reason, it is important for us to understand what risk is or the definition of risk and the types of risk in business.

By knowing the concept of risk in business, we can be better prepared when we go into business. Motivation in taking risks and risk management can be better prepared.

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Definition of Risk

The definition of risk is known in the business world basically there are several. However, in general it can be drawn an outline that the concept of risk is always associated with the existence of uncertainty in the future.

The definition of risk is more specific, it can be interpreted as a consequence that arises as a result of the impact of uncertainty, thus creating adverse impacts on business actors.

Conversely, if the consequences that produce this impact are considered beneficial, then it is not called a risk. These positive consequences are considered as expected benefits.

Risks like this basically are always there in everyday life. It’s just that, its intensity will increase when we do business activities. Moreover, when we want large profits / results, the risks that must be faced will also be greater. This condition is known as high risk high return .

Motivation for Taking Risks

Although the risk tends to have a detrimental impact on the company, but this risk is still taken by entrepreneurs. There are several reasons that encourage someone to take this risk. Motivation to take risks can be based on the desire to get a level of profit or return commensurate with the sacrifice that was issued first.

When an entrepreneur carries out risky activities with motivations for profit, he will usually be able to calculate the magnitude of the risks faced. Based on these calculations, he will set the desired profit target.

For example, a person who has money to invest, he can choose from many choices. The first possible option is to save it in a bank with a certain interest of 5% each month.

The second option, he can invest in a culinary business with a profit potential of up to 300%. However, in the second option that has the potential for this large profit, he also must face the risk of uncertainty in the results of these benefits.

In addition, the reason a person is willing to take risks can also be due to the tightness or compulsion. In this case, someone might take the risk because the accompanying conditions are already very urgent.

This urgent condition makes a person less concerned with the risks that must be faced. Even if he understands the risks faced, he also does not have enough time to calculate the magnitude of the risks faced.

Types of Types of Risk in Business

Someone who wants to start a business or a business beginner, so he really needs to know some of the risks that may be encountered in business, especially for start-up business . Here are the types of risks in business that often arise:

1. Pure Risk

Pure risk in business is risk that arises because of a situation or decision whose consequences are loss alone. There are several forms of pure risk that often arise, such as:

  • Risk of loss / damage to assets owned as a result of fire, embezzlement, theft and others.
  • Work accident in the production process.
  • Risks due to lawsuits from other parties, such as poisoning from food sold, consumer demands due to negligence committed and so on.
  • Other operational risks.
  • Natural disasters or force majeure,such as earthquakes, floods, hurricanes and the like.

2. Speculative Risk

Speculative risk is the risk that arises as a result of a situation or decision whose consequences can be losses or gains. Examples of possible speculative risks, for example:

2.1 Risk of price changes

The market price of a product, service or commodity can change, it can go up or down. This is caused by changes in input prices. When input prices rise, the company can suffer losses due to decreased profit margins.

Conversely, if input prices fall, the company will actually experience profits. This is due to an increase in profit margin.

In addition, if it is associated with output prices, the company will experience profits when output prices rise due to increased profit margins. Meanwhile, if output prices fall, then the company will suffer losses, due to a decrease in profit margins.

2.2 Credit risk

This credit risk is a risk that arises due to credit transactions, such as trade payables. If the party given the credit fails to pay. If this happens, the entrepreneur will suffer a loss.

Although we will not be separated from the risk. However, that does not mean that we should avoid these business activities and completely release the risks. Because, you can do risk management to minimize the possibility of existing risks.

by Abdullah Sam
I’m a teacher, researcher and writer. I write about study subjects to improve the learning of college and university students. I write top Quality study notes Mostly, Tech, Games, Education, And Solutions/Tips and Tricks. I am a person who helps students to acquire knowledge, competence or virtue.

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