4 Types of Risk in Business

1 – Strategic risk:

This is the first type of business risk. The strategy is a major part of every business. And if the top management isn’t able to decide the right strategy, there’s always a chance to fall back. For example, when a company introduces new product to the market, the existing customers of the previous product may not accept it. The top management needs to understand that this is an issue of wrong targeting. The business needs to know which customer segment to aim at before it introduces new products. If new product doesn’t sell well, there’s always a greater business risk of running out of business.

2 – Operational risk:

Operational risk is the second important type of business risk. But it has nothing to do with external circumstances; rather it’s all about internal failures. For example, if a business process fails or machinery stops working, the business won’t be able to produce any goods/products. As a result, the business won’t be able to sell the products and make money. While strategic risk is pretty difficult to solve, operational risk can be solved by replacing the machinery or by providing the right resources to start off the business process.

3 – Reputational risk:

This is also a critical type of business risk. If a company loses its goodwill in the market, there is a huge chance that it would lose its customer base as well. For example, if a car company is blamed for launching cars without proper safety features, it would be a reputational risk for the company. The best option in that case is to take back all the cars and return each one after installing the safety features. The more accepting the company would be in this case, more it would be able to save its reputation.

4 – Compliance risk:

This is another type of business risk. To be able to run a business, a business needs to follow certain guidelines or legislation. If a business is unable to follow such norms or regulations, it is difficult for a business to exist for long. It’s best to check the legal and environmental practices first before forming a business entity. Otherwise, later on, business will face the unprecedented challenge and unnecessary law-suits.