Risk management

The moment it starts to trade, every company will inevitably face internal and external risks. Therefore, company directors and employees must know how to detect, recognize, control, and prevent risks as part of their daily activities. There are five main types of business risk:

• Financial risk
• Strategic risk
• Operation risk
• Compliance risk
• Reputational risk

The five main types of business risk

Financial risk – A wide range of issues can threaten the financial health of a company. They can range from currency exposure to credit risk, cash flow shortages to rising costs.

Strategic risk – This happens as a result of strategic decisions taken to steer the company in a particular direction. For instance, the company’s board decides to invest heavily in R&D, and while pursuing this path, the company may become less efficient in other areas and may realize its vulnerability.

Operation risk – This relates to anything that can affect the day-to-day running of a company. It can stem from inadequate internal processes, a breakdown in the supply chain, or from external events like interruptions to the delivery of electricity. Its coverage is far and wide, ranging from legal risk, technology risk, property and equipment risk, security risk, human resource risk, suppliers risk, to market risk.

Compliance risk – Every company is governed by laws and regulations to ensure that its business activities comply with the laws of the land. Compliance risk includes the regulatory risk, workplace health and safety, environmental risk, and social responsibility.

Reputational risk – Any failure to meet expectations from stakeholders, customers, partners, and even the public can cause them to form a negative view of the company. To avoid reputational damage, companies must ensure that the business activities carried out by the directors, employees and even partners are ethical and in compliance with relevant laws, policies, and regulations.