Nature of Business Risks

The nature of business risk can be understood through its peculiar characteristics:

• Risk is an essential part of every business: Every business carries some risk. No business can avoid risk, though the amount varies from business to business. Risk can be minimised, but not eliminated.

• Business risks arise due to uncertainties: Uncertainty is the lack of knowledge about what will happen in future. Natural calamities, changes in demand and prices, changes in government policies, and improvements in technology are examples of uncertainty; because the outcomes of these future events are unknown, they create risk.

• The degree of risk depends mainly on the nature and size of business: The nature of the business (the type of goods and services made and sold) and its size (the volume of production and sale) are the main factors deciding how much risk it faces. A business dealing in fashionable items has a high degree of risk, and a large-scale business generally carries more risk than a small-scale one. …