Question

when you start business what are the project risks and what can you do to reduce them?

Answer 1

Project risks

A new project or launching a new business faces many risks. One is poor marketing understanding that cause market risk. A new project such as selling a product requires good understanding of market and needs of customers. Through analysis is required of market trends, perceptions of customers and if these initiatives are not implemented, the project faces market risk where product may not be accepted by customers and market.

Product risk is also evident in new start up. An entrepreneur must know the features of product and needs of customers. If the product characteristics are not matched with the desires and needs of customers, the product may not be accepted by them.

The next risk is financial risk. A new business needs to invest fund and if the expenses of business are poorly planned, it can cause shortage of fund to continue the business operation. A thorough analysis of various expenses of new business if not undertaken, can lead to financial risk. Keeping extra money to face contingencies is required but when such contingencies such as price increased up of raw material or increase of rent or economic slowdown may hamper the business planning and therefore, extra fund is required. The next risk for a new business is changing legal rules and regulation. For example, new safety rules and regulation, new taxes imposed on business, or new requirements for packaging and labeling can cause legal risk for the new business. The next risk is lack of human resource. Having sufficient human resource ensures business planning is effectively implemented but if human resource requirement is not planned well, it increases the risk of lack of human resource. Risk of procurement and changing technology also pose challenges for new business. Risk of volatility in demand of product due to economic recession or economic boom is also found.

Strategies to reduce risks

To reduce market risk, through research and analysis of market is required. As an entrepreneur, therefore, it is recommended to conduct a deep research of market, target customers, their perceptions and attitudes, competitors, etc. to minimize market risks. The risk of product can be minimized by understanding the needs and wants of customers clearly, therefore, it is recommended to conduct a survey of target customers to know their exact requirements and expectations from product to provide a customized product. Legal risk can be addressed by taking into consideration of legal environment. Future changes in legal rules and regulations need to be anticipated by asking industry consultants and keeping vigil on government future initiatives. Financial risk can be addressed by properly defining the expenses of new business, scope of business, and buying insurance for new business. Keeping records of expenses is also required to manage financial risk. To reduce human resource risk, competent employees should be found and hired. Exact requirements of human resource need to be estimated as well. Procurement risks and changing technology risk needs a proactive approach to ensure supply of goods and handle technological disruption. A proactive approach to manage inventory and demand of customers is also suggested. These initiatives can mitigate risk of introducing a new project in the market.