Thursday, 15 July 2021

What are the types of risk that a company might need to face?

 When any person runs a company, they know that every company is having tier two time. One time is beneficial for the company when they grow well and make good approach in the market. While several times the company also need to go through the bad time when the company need to face several time of risks.

It is not possible for the company to grow all the time and see only the good time. Mane time, the company need to faces several kind of risks. The characteristic that distinguish a good company from other is that the good company is having he management strategy for the risk from the beginning. The company knows that kind of potential risk and thus they develop a strategy before in order to manage the risk in emergency time. But for identifying he type of risks, assessing them, evaluating, them, and then developing a strategy to manage them, the company requires to know the types of risks.    

In this guide, here we are listing all the types of the risks that a company might need to face in their bad time. When the company is aware for the kind of the risk that they might faces, they will be aware for them and thus develop a pre defined strategy in order to manage them in the case if any of the risk hit the company.

The company requires to understand all kind of risk well and thus they will be able to develop strategy in order to manage them. This guide will help the organization to understand all kind of possible risks that all the organizations should be aware of.

Type of risk

Risks refers to the threats or the chances of some negative incidence in the organization that can affect the processing of the organization as well. The risk can range from financial risk to political risks and many more. Here we will discuss all kind f risks that an organization should be aware of:

Business risk:

Whenever any company plan to launch their new product, they are taking a big business risk. The business risk can be defined as the risk that are taken by the company itself in order to grow. For a company to grow well, they have to take risk. When ever the company launch their new product or invest much of their share in order to earn more profit, they are going through a business risk. There are chances that the company might face lose while launching their new product. Alos, the investment of the company can also prove wrong and these all threats come under business risks.

Companies in order to grow faster sometimes take a very high budget project or invest a high amount in the marketing of their new product, these all lead to business risks.

Non-business risk: The risks under the non business category involves the risks that are not under the control of the firms or the organization. These are risks that are originate from the external sources and can hit the company any time.

The non business risk includes the unwanted government policies, economic and political imbalances that can arise from the external source and can hit the organization any time.

Financial risk:

This is the major category of the risk that the company many times need to struggle with. It is among the major concern for the company and this risk category includes the financial loss to the firm. Both of the above category of the risk also in the end lead to the financial loss.

Well, financial risks is defined as the risks that arises from losses and instability in the financial market that are caused by the movement or changes in the currencies, stock market, interest rates, and others.

Since financial risk is the major concern for all kind of organization, they are counted among the high-priority risks. This risk is further divided into several other categories including market risks, credit risks, liquidity risks, operational risks, legal risks, and many more.

Market risks

The market risk is the major kind of the financial risk that leads to the loss of the capital and the investment of the organization. It occurs due to the movement or the change in the prices of the financial instrument and thus loss to the company.

The Market financial risk is further sub divided into directional and non directional market risks. The movement in the interest rates, stock prices, and many more that leads to the loss of the company are defined under directional market risks. While the non directional market risks are volatility risks.

Credit risk:

Every company in order to undertake new project and for that project purpose, they often take loans from the market. But in the worst condition, if the project fails and the company suffers from losses, they become unable to repay their loan amounts and unable to fulfill their obligations towards the another party. This risk type is categorized under the credit risks.

This risk category is further sub divided into Settlement risks and the Sovereign risk. The reason for the arousal of sovereign risk is due to the difficult foreign exchange policies. While the settlement risk arises when one part makes payment and the other one unable to fulfill their obligations.

Liquidity risks

This kind of risk arise when there is obstruction in the cash or the liquidity flow. It is further divided into funding risk and the asset risk.

Operational risks

Mis management or the operational failure due to any cause lead to the operational risk and ultimately loss to the company. It is further classified in fraud risks and the model risks. Fraud risk is due to the mismanagement while the model risk is due to incorrect model application.

Legal risks

In the legal proceeding, the company need to spend much of their capital and this comes under legal risks.

The bottom line

  So these are different types of risks that a company should be careful for!            

 

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