State the causes of risks involved in the business?


By Harshvardhan, the Subject Matter Expert at Edumarz

Solution: Business Risk is nothing but the possibility of inadequate profits or even losses due to uncertainties or unexpected events. Risk will always accompany Profits in a Business. Business risks happen due to a variety of reasons which are classified as follows: 

(i) Natural causes: Human beings have little control over nature and natural calamities, like floods, earthquakes, lightning, heavy rains, famine, etc.

(ii) Human causes: Human causes include unexpected events like Corruption, carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc.

(iii)Economic causes: These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology of production or method of production, etc. Financial problems like rising in the interest rate for borrowing, levy of higher taxes, etc., also come under these types of causes as they result in the higher unexpected cost of operation or business. 

(iv) Other causes: These are unforeseen events like political disturbances, mechanical failures such as the bursting of the boiler, fluctuations in exchange rates, etc which can lead to the possibility of business risks.

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