Businesses are faced with many risks which if not well managed, may derail positive growth. In a worst-case scenario, poor risk management may result in the collapse of business fundamentals and loss of shareholder value. Understanding the various types of risk is an essential step in managing them. In this article, delve into the different categories of risk.
Businesses are formed to create and deliver value to their customers. This value is in the form of goods or services. Additionally, the channel through which the value is provided is also important in the analysis of whole value derived by the diverse market segments. As far as demand risk is concerned, the business may do everything to meet the needs of the customer, but the latter may not appreciate it. The tendency of customers to seek value elsewhere exposes a business to losses. To mitigate demand risk, companies need to pursue customer-driven business models implying that they should first try to understand customer requirements before attempting to meet the need.
The normal operations of a business are fundamental to their bottom line and survival. However, these operations are not mechanical and could face severe challenges, both foreseen and unforeseen. Whereas businesses can plan for and mitigate anticipated risks to their operations, it is the unexpected risks that pose a real danger to survival. Such risks include unpredictable government policy or acts of God. Luckily, some operational risks, such as fraud and damage to critical business equipment, may be mitigated by taking out insurance policy covers.
Cash flow is the lifeblood of any business. A stifled cash flow impedes essential business operations such as staff remuneration, paying utility bills and marketing. The liquidity risk is the capacity or lack of it, of a business to meet its daily operational obligations. Inability to meet obligations puts a company on the edge of a cliff. Revenue management is, therefore, critical to business sustainability.