The main types of risk to consider are:
- strategic, for example a competitor coming on to the market
- compliance, for example responding to new health and safety legislation
- financial, for example non-payment by a customer or increased interest charges on a business loan
- operational, for example the breakdown or theft of key equipment
Categories of risks are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing both your operations and your business' compliance.
See how to comply with the General Data Protection Regulation (GDPR).
Wider business risk factors
Other factors can present certain threats to your business, including:
- environmental risks, such as natural disasters
- employee risk management, eg maintaining sufficient staff numbers and cover, employee safety and up-to-date skills
- political and economic instability in any foreign markets you export goods to
- health and safety risks - see health and safety risk assessment
- commercial risks, including the failure of key suppliers or customers
See how to evaluate business risks.
Importance of understanding risk
Understanding and managing risks allows you to control, and often prevent, the financial, organisational, legal and other ramifications associated with risks.
Risk is often described by an event, a change in circumstances or a consequence. A common definition of risk suggests that risk is the effect of uncertainty on achieving or surpassing business objectives. This effect may be positive, negative or a deviation from the expected, for example in forecasts and projections.
Without identifying risks, it is difficult to successfully define your objectives and set out strategies for achieving them. It is best practice to integrate business risk management with your strategy formulation and business planning processes.
See more on strategic planning for business growth.