Businesses all over the world are realizing the importance of managing and mitigating risk. However, they face some unpredictable risks which are beyond their purview. These risks occur less frequently and often lead to much higher costs. Some of these unpredictable risks are:
A natural disaster can neither be predicted nor controlled by humans. Hence, businesses are most vulnerable to this risk. They can adversely affect infrastructure and business operations leading to huge losses. Apart from interrupting business operations natural disasters also tend to push down share prices of the company. Post the 2011 Tohoku earthquake in Japan, many factories shut down and their share prices fell.
Man-made disasters like infrastructural faults (weak building or bridges leading to collapse), oil spills and nuclear disasters can also act as hurdles for businesses. The collapse of the Rana Plaza in Bangladesh, in 2013, killed around 1000 workers and damaged the reputation of many garment companies. Such disasters often occur due to non-compliance of rules, regulations, and standards.
Businesses have to function within regulatory constraints which are often complex and change rapidly. Change in tax policies unfavorable to a business, ban of certain substances, or additional regulations which are to be followed can impair the profitability of a business. Keeping track of changes in laws and complying with them can be complicated. Businesses can use compliance management application to simplify this additional work. V-comply is an internationally acclaimed compliance management Software-as-a-service that can be used by businesses.
Political organizations influence the price of oil and international trade in goods and services. Moreover, changes in oil prices are a growing concern for many industries. The increase in tariffs and deteriorating trade relations between different countries can negatively impact businesses. The recent issue of H1-B Visa is affecting many Information Technology Companies.
Commodity Price Risk
Fluctuations in the price of inputs used by a business can critically affect its profits. However, one can hedge this risk with the use of futures and options.
Credit Crunch and Liquidity Crisis
Deficiency of credit and lack of liquidity in the market can cause hindrances in the activities of many businesses. Moreover, they will be unable to meet their short-term obligations such as repaying loans, paying its bills and employees. If the severity of the situation intensifies the company should declare bankruptcy.
Every business faces widespread competition from domestic as well as international markets. Companies need to innovate, create brand awareness and product promotion and perform product differentiation to secure the existence of their business in the market.
It might not be possible to accurately predict these risks but one can take precautionary steps to mitigate the effects and ensure faster recovery. Thus companies need to be more aware and indulge in prudent planning.”
The biggest risk a person can take is to do nothing” – Robert. T. Kiyosaki. Hence, every business should have an efficient risk management team to monitor these risks and mitigate them.Add to favorites