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Week 4 assignment

Week4 assignment

Duedate

Entrepreneurshipinvolves risk taking. The very act of undertaking a business ventureand maintaining it encompasses large uncertainties. Business riskis, therefore, the possibility that a company`s cash flows areinadequate to cover all operating and miscellaneous costs. These areexpenses that management incurs by executing an organization`s normaloperations. They include wages, rent, taxes, administrative costs,and transport among other general expenditures. Without enough moneyto settle these bills, businesses become vulnerable, and thelikelihood of failure is very high. Business risks can result fromexternal or internal factors which imply that at some pointcorporations have no control over them. For instance, lossesoriginating from flood or drought can never be eliminated. However,these risks can be avoided or managed through various risk managementtechniques. Essentially, risk management involves preservation ofassets and earning power of business against the risks of loss.Companies ought to consistently assess their vulnerability toprecariousness, identify the potential sources of these risks andcome up with master plans for reducing that exposure. Some examplesof business uncertainties entrepreneurs need to be aware of includeproperty, employee, market and customer related risks. Some of thetechniques to hedge against these risks have been discussed herewith.

Propertyrisk

Propertyrisk crops up when corporations invest in fixed property or realestates. This implies that any changes in the market that affect theproperty portfolio has a direct effect on the corporate`s profits.This kind of risk may be caused by the inability of tenants to payrent, damage to the property, theft, fire, a decrease in market valueof the property or legal issues associated with property protection(Trupin&amp Flitner, 2012).On a similar case, any risk related to the premises within which thebusiness is located also falls into this category. Thus protectingthe building and its contents becomes of paramount importance for anyorganization’s survival. Some of the techniques that can beemployed to mitigate such risks are as follows.

Onerecognizable strategy that aid in mitigating property risks isacquiring a proper insurance cover. This may not prevent theoccurrence of the risks but acts as a buffer to put the entrepreneurback on track after the event of the loss. For instance, a businessinterruption insurance plan helps in ensuring that the businesspersoncovers his/her operating expenses, repairs and keep receiving theiraverage revenues for some time to allow the business maintain itsstability. Another important technique is developing a disasterrecovery plan. Every business needs to come up with a plan B in casetheir plan A fails. In the most cases, any interruption of businesspremises may result in data loss. In that case, data backup plans maybe needed in advance. Lastly, for firms that invest in real estate,it is important to diversify their property portfolio. For instance,instead of investing in rental houses only, some of the premisescould be rent out for business practices. On the same note,concentrating the buildings in the same place may be dangerous mainlyin the event of a fire. Thus, a reasonable geographical distance iscritical.

Marketrisk

Marketrisk is referred to as the possibility of financial loss as a resultof fluctuations in the market value of assets. It arises from drasticchanges in interest rates, exchange rates and prices of stocks andcommodities. Market risk may also crop up a result of other factorssuch as volatility and correlation (John&amp McCurdy, 2016).A perfect example of market-related loss in the manufacturing sectoris the case where a customer may change their attitude towards theproduct which may result in product obsolesce. One of the majortechniques of hedging against market-oriented risks involvesdiversifying the investment portfolio. This can protect theentrepreneur against market risks because various portions of themarket tend to underperform at different times. Anotherstrategy to mitigate this risk involves gathering adequate marketinformation before investing in any financial asset. Gaining insightfrom the previous performance of different assets may enable anentrepreneur to make informed decisions before dedicating their moneyto any investment. Remaining abreast of global economic trends anddevelopment is important. For instance, if one intends to venture inaerospace, know about various factors affecting this sector includingpolitical, economic and social factors. That way it becomesincredibly easy to foresee any future risk and undertake essentialprotective measures.

Employeerelated risks

Employeesform an important part of any corporation, yet they pose the greatestdanger to the firm. Employee risk emanates from erratic, negligent ormalicious counterproductive behavior that may cause harm to theorganization. Some of the sources of employee risks include severepersonalities, financial negligence, fraud, disputes, the departureof critical employees and illness among other factors. The impact ofthis kind of risks may not be felt in the short-run, but in thelong-run, they have a considerable effect on the firm`s profits.Eliminating this risk is hypothetical and unrealistic. However,several strategies could be employed to reduce it significantly.

Oneof the best ways is by taking the time to understand and know theemployees genuinely. For instance, use of referrals can serve as achannel to screen employees and bring the best candidates on board.Today employers have incorporated the use of rigorous interviews andcontinuous background checks to bring to light information aboutcandidates to avoid hiring workers that may harm the organization. Another master plan that can be employed is by offering trial periodsto new employees. Taking workers on trial basis or as contractors maysignificantly reduce employee risks. This is because it is veryexpensive to train employees then lose them just when they begintheir terms.

Customerrelated risks

Everyclient is important to the business and ought to be treated withutmost respect and care. Every time an employee communicates with thebuyer, he/ she may provoke a variety of reactions. The transactionmay satisfy, dissatisfy or delight a customer depending on theability to meet client`s needs and expectations. Satisfaction ariseswhen all client`s needs are averagely met while delighting thecustomers occurs by exceeding their expectations. On the other hand,dissatisfaction occurs when customers’ needs are not gathered totheir expectations. This is the primary cause of customer relatedrisks since it may result in a company losing its loyal buyers orbeing unable to attract new clients (Engemann,2014).In today’s fiercely competitive market structure, customer loyaltyis a crucial component to business success. Therefore, reducingcustomer related risks is of paramount importance.

Oneway to reduce customer related risks is by diversifying withincustomers as much as possible (Eccles,2015).It is not advisable to tie your relationship with a single client orcompany. There is a need to have several champions within theenterprise who can advocate for you. Another strategy is by embeddingyour company with something customers need. In that case, it may behard to lose customers to competitors quickly. It creates stickinessand makes it more difficult for customers to ditch you.

Insummary, it is not possible to hedge against risks that you are notaware of. Thus business should involve analysis of potential hazardsbefore employing any risk mitigation tools. Given that everyentrepreneur hopes for organizational success, thus it becomesnecessary to put into place escape plans for any risks. Prevention isalways better than cure. Ignorance may be the leading cause ofbusiness failure when business risks are put into consideration.

References

Eccles,R. (2015). ManagingRisks: A new frame work.HarvardBusiness Review:Harvard Business School

Engemann,K. (2014). Riskmanagement, decision technology.InternationalJournal of Business Continuity and Risk Management,6(4).

John,M. &amp McCurdy, T. (2016). Componentsof Market Risk and Return.Journalof Financial Econometrics.5(4),560-590.

Trupin,J. &amp Flitner, A. (2012). Commercialproperty risk management and insurance Malvern.American Institute for Chartered Property Casualty Underwriters:Insurance Institute of America.