Question

Provide five examples of common
business risks faced by companies
and what control measures should
be taken to minimize each business
risk.

Answer 1

Running a business comes with many different types of risk. Some of these potential hazards can destroy a business while others can cause serious damage that can be costly and time-consuming to repair.

Below are the main types of risk that firms face:

Physical Risks

Building risks are the most common type of physical risk. Fire or explosions are the most common risk to a building. To manage building risk, and the risk to employees, it is important that organizations do the following:

• Make sure all employees know the exact street address of the building to give to the 911 operator in case of emergency.
• Make sure all employees know the location of all exits.
• Install fire alarms and smoke detectors.
• Install a sprinkler system to provide additional protection to the physical plant, equipment, documents, and, of course, personnel.
• Inform all employees that in the event of emergency their personal safety takes priority over everything else. Employees should be instructed to leave the building and abandon all work-associated documents, equipment, and/or products.

Hazardous material risk is present where spills or accidents are possible. The hazardous materials most frequently spilled or released into the atmosphere of a workplace are:

• Acid
• Gas
• Toxic fumes
• Toxic dust or filings
• Poisonous liquids or waste

Location Risks

Among the location hazards facing a business are nearby fires, storm damage, floods, hurricanes or tornados, earthquakes, and other natural disasters. Employees should be familiar with the streets leading in and out of the neighborhood on all sides of the place of business. Individuals should keep sufficient fuel in their vehicles to drive out of and away from the area. Liability or property and casualty insurance are often used to transfer the financial burden of location risks to a third-party or a business insurance company.

Human Risks

Alcohol and drug abuse are major risks to personnel in the workforce. Employees suffering from alcohol or drug abuse should be urged to seek treatment, counseling, and rehabilitation, if necessary. Some insurance policies may provide partial coverage for the cost of treatment.

Illness or injury among the workforce is inevitable and a persistent problem. To prevent loss of productivity, assign and train backup personnel to handle the work of critical employees when they are absent due to a health-related concern.

Technology Risks

A power outage is perhaps the most common technology risk. Auxiliary gas-driven power generators are a reliable back-up system to provide electrical energy for lighting and other functions. Manufacturing plants use several large auxiliary generators to keep a factory operational until utility power is restored.

Computers may be kept up and running with high-performance back-up batteries. Power surges may occur during a lightning storm (or randomly), so organizations should furnish critical business systems with surge-protection devices to avoid loss of documents and destruction of equipment. Establish offline and online data back-up systems to protect critical documents.

Strategic Risks

Strategy risks are not altogether undesirable. Financial institutions such as banks or credit unions take on strategy risk when lending to consumers while pharmaceutical companies are exposed to strategy risk through research and development for a new drug. Each of these strategy-related risks is inherent in an organization's business objectives. When structured efficiently, the acceptance of strategy risks can create highly profitable operations.