Princeton,NJ/ 360prwire/ December 10/
Business risks are inevitable issues that an entity must handle. A business has two types of risks. They are an inherent risk that comes with the industry in which the company operates. And external risks that are risks out of the company’s control. In the world, many factors contribute to such issues today. In this article, we will look at the different business risks firms are exposed to this year, using the report by the Allianz Group.
What are Business Risks?
They are internal or external factors that threaten the financial health or the solvency of the business. They are accepted as risks a business will have to deal with if running a company. There are four board classifications of business risk, which are:
Financial Risks
They temporarily or permanently threaten the fiscal health and the profitability of a company. Examples are risks involved with borrowing from the bank, buying on credit, selling on credit, and managing operational costs.
Operational Risks
They slow down or stop a company’s ability to function temporarily or indefinitely. Examples of these are strikes and embezzlement by employees, threats of arson or accidental fire, and natural disasters.
Compliance Risks
Risks involved with complying with the laws and rules of the country. Examples are safety and health rules in manufacturing companies, healthcare, or regulations on borrowing money from the bank.
Global Risks
These are risks the company will have to bear for operating in a foreign country. Examples of these risks include foreign exchange, political landscape, and laws of the country.
The Top Ten Business Risks According to The Allianz Risks Barometer
For the last ten years, the Allianz Global Corporate & Specialty, a global insurance carrier and part of the Allianz group, have produced reports on business risks ranking them from 1 to 10. It does this by surveying a group of experts. This year’s list is:
Business Interruption
Business Interruption takes the top spot for the sixth year running. Business interruption is all things that can stop a business from operating. The supply chain was the primary business disruptor, according to the surveyed group. 94% directly attribute it to the COVID-19 pandemic.
A Pandemic Outbreak
The pandemic outbreak had the biggest leap in the data, jumping from 17th position to 2nd on the scale. It isn’t a surprise either, given Covid-19 happened last year and the talk of possible new variants of the virus. 40% of experts surveyed agreed this is one of the top three business risks to watch out for this year.
Cyber Attacks and Other Cyber Related Activities
Cyber Incidents ranked 3rd in this year’s barometer, with 40% of surveyed individuals agreeing to cyber incidents’ risks this year. It unsurprising fell by one point from last year.
Market Movements And Developments
There is a relationship between Covid-19 and most of the other risks on this scale. The pandemic has made markets much more volatile, with business trimming their size, some reinventing themselves, or shutting down – the market is more volatile than ever before. Even though there is a predicted short-term increase in GDP as countries borrow money and recover, the long-term effect is to be known.
Changes in Regulation
Covid-19 has brought with it changes in regulation. An example is the compulsory mandate states have implemented in America, enforcing the vaccine on their citizens. Nothing is stopping the country from implementing similar rules for businesses. A second example is the petrol crisis. We saw a direct consequence of the Brexit laws in effect. Because the truck drivers that drive the fuel tanks are predominantly non-British citizens, they had to stop working to process their papers, leaving a vacuum in the supply chain for petrol. 19% of the experts agreed it is a business risk to watch out for this year.
Natural Disaster
Natural disaster ends up as number six on the barometer. This entry is one we can do little about mitigating the risk. Earthquakes, floods, hurricanes, and drylands will always pose risks to most businesses. 17% of surveyed individuals agreed with these.
Fire Related Damage
A risk commonly associated with manufacturing plants. It is preventable, but more often than none, the combination of human error, negligence, and poor safety protocol lead to fire outbreaks, causing damages in the millions. It sits as number seven on the barometer scale, with 16% of experts agreeing with the decision.
Macro Economy Dynamics
The prices of goods, inflation, and monetary policies have taken place. A good example is the relief policy passed by countries like Canada, Germany, and the United States to help families and small businesses stay afloat. It was a needed help most citizens required during the Covid period. Post-Covid, there are signs of heavy loans given to companies from the government and banks to help the economy. The Marco Economy conditions mean 13% of experts agree this will be a business risk to watch.
Climate Change
Climate change is a big issue, and it will remain one for a long time. It directly or indirectly affects businesses. The Paris agreement exists solely to tackle this problem. The ranking of climate change fell. And it should be expected as it doesn’t directly correlate compared to the others on the list that the pandemic affects directly.
Political Risks And Violence
These made it into the tenth spot. Even with the pandemic, a lot has gone on in various countries. The Afghanistan government is under the rule of the Taliban again. There was political unrest in Brazil. The poor handling of the pandemic led to political unrest in Colombia. China is threatening the world about Taiwan and other political instability happening around the world.
Mitigating Business Risks
Companies may not avoid business risks but can manage them through practical risk management skills. Managing them are steps you take to mitigate the risks and ensure you don’t carelessly incur the risk.
Prioritize the Risks
Investigate the list of risks and prioritize them using how likely the risk is to occur and the impact on the business. You can use a simple quadrant of low and high on a piece of paper to help you rank your business issues.
Get Insurance
Insurance will always do you good. Getting insurance helps you mitigate risks like fire, theft, and accidents that can occur in the daily operation of the business.
Be Prudent With Debt
Watch the company’s equity to debt ratio. It can be tempting to borrow money to engineer growth, but you should do this with a prudent mind. Consult a professional if your debt is exceeding your equity by a significant difference.
Limit High-Risk Customers
Debtors that owe a lot are not what you want for your business. It’s best to only sell on credit if the person is creditworthy.
Set Reasonable Goals
Unrealistic targets for your employees or yourself can drive your business to the ground. If you pay the employees on a commission or sales basis, they may get involved in underhanded behavior, like stealing or forging a document to meet set targets or goals.
Final Thoughts
In conclusion, business risks are usually not preventable, but you can manage them. If you cannot deal with it, then avoiding it is your best option. Preparing for such risk through a method like insurance is also a good option. In our current society, where Covid-19 has done us a great deal of damage, we can only pick ourselves up and forge ahead.
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