What is a risk?
Risks are inevitable in most business environments. Many organizations constantly face threats that come about because of technological changes, market volatility, and regulatory changes.
But what exactly is risk? Risk can be described as the combination of the likelihood and severity of an event. Risks are also events with negative consequences that can prevent your organization from achieving its goals or objectives.
Risks are driven by a range of internal and external factors. While some of these factors are within your control, others may be more difficult to manage because of outside influences.
Internal and external factors
Risks caused by internal factors are generally associated with the decision-making processes and procedures already in place in an organization. For instance, you may risk losing customers if your organization has inadequate technical support in place.
Other internal factors relate to investment decisions and HR management. For example, your business may end up losing market share by deciding not to invest more in research and development.
External factors, on the other hand, are associated with forces beyond your organization’s control. Typical external risk factors include volatile markets and fluctuations in exchange rates — both of which may increase the cost of importing supplies.
Increased competition, new regulations, and natural events such as bad weather are other external factors that can pose a risk to your organization. Bear in mind that some risks may involve both internal and external factors.
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