Guide

Risk management

Types of risk your business faces

Business risk is a broad category. It applies to any event or circumstance that has the potential to prevent you from achieving your business goals or objectives. Business risk can be internal (such as your strategy) or external (such as the global economy).

You should not manage or treat in the same way all types of risk. You should understand what type of risk you are facing, before you consider how to deal with it.

Types of business risks

The main four types of risk are:

These 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.

Other sources of business risk

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.