AOFEntrepreneurship

Unit 3, Lesson 7

Business Risks

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Risk is the degree of exposure to loss or damage that a business takes on, which can also generate gains

• Businesses must take on some risks in order to generate profit.

• Managers need to understand the risks in their business and their budget decisions.

• Risk is in part about the uncertainty in business decision making.

How is a business risk like gambling?

Managing and mitigating risk involves three essential steps: assessing the risks, preventing risk, and planning recovery

Why do businesses need to carefully weigh their risks before taking action?

1. Assessment—Weigh risks

2. Prevention—Avoid or mitigate risks

3. Recovery—Plan ahead what to do if something goes wrong

4. Repeat—Regularly reassess risks, review risk objectives, and take action

Business managers must carefully identify and assess each type of risk affecting the business

• Product risks

• Business model risks

• Market risks

• Execution risks

• Lawsuit risks

Besides product safety, what other product risks do businesses face? How might a careful market research study help businesses prevent these product or business risks?

Part of risk prevention involves setting goals and controls that help businesses measure success

• Setting goals helps entrepreneurs plan for success.

• Milestones and benchmarks help identify when a business is off target.

• If goals aren’t met, identify why and adjust the company’s business practices.

Each business faces unique risks based on its industry, business model, and business execution

1. Businesses should understand the risks related to their business model, products, and practices.

2. A risk assessment indicates the impact of each risk on the business and strategies for reducing risk.

3. Business risk can affect the company’s finances in terms of short-term earnings goals, or in large losses from a disaster or other event.